· The dollar was broadly on the back foot on Tuesday with the New Zealand dollar leading gainers against the greenback as a broad rally in Asian equities spilled over into currency markets.
Despite expectations of a trade deal relatively thin from a resumption of trade talks between Beijing and Washington this week, market watchers attributed the moves to positioning after a brief bout of volatility last week.
“We had a lot of market volatility last week and the current move in the high-beta currencies is due to some unwinding of extreme long positions in the dollar,” said Morten Lund, a senior FX strategist at Nordea.
Against a basket of its rivals .DXY, the dollar dipped 0.1% to 98.91 after posting its biggest single-day rise in a week in the previous session.
Markets will be keenly watching comments from U.S. Federal Reserve Chairman Jerome Powell later in the day after some weak U.S. data last week raised concerns the U.S. economy may be heading towards a protracted slowdown.
The euro EUR=EBS got a boost from German industrial output data which rose unexpectedly in August.
The single currency rose 0.1% to $1.09815 but remained within sight of a more than a two-year low of $1.08790 hit last week.
Deputy-level meetings between U.S. and Chinese trade negotiators began in Washington on Monday, with little immediate signs of progress.
· EUR/USD Struggling to Find Support
The most actively traded FX-pair continues to drift and is looking for support to arrest its multi-month decline. The latest leg lower is being driven by dovish ECB talk and policy, while the US dollar is trimming back expectations of two interest rate cuts by the Federal Reserve in the months ahead. The ECB will be pleased that EURUSD is moving lower as it makes their exports more competitive at a time when growth in the EU is slowing sharply, especially in the zone’s ‘export engine’ Germany.
The daily chart confirms the ongoing weakness in the pair and suggests lower prices in the future. The series of lower highs have accelerated from the June 25 high, while the pair have leaked lower all the way back off the mid-February 2018 high at 1.2566. The pair are also trading below all three moving-averages, a negative bias, while big figure support at 1.1100, 1.100 and 1.0900 has failed to hold.
Initial resistance, albeit weak, is pegged at 1.0926, ahead of stronger resistance at 1.1027 and the 1.1100 to 1.1120 zone.
· China’s services sector grew at its slowest pace in seven months in September despite a strong increase in new orders, a private survey showed on Tuesday.
The Caixin/Markit services purchasing managers’ index (PMI) fell to 51.3 last month, the weakest since February, following August’s 52.1 reading. The guage, however, held above 50, indicating expansion.
· Samsung Electronics said on Tuesday that its operating profit for the three months that ended in September dropped by more than half from a year ago.
Operating profit for the third quarter is expected at 7.7 trillion Korean won ($6.43 billion), down 56.17% from a year ago when the world’s largest smartphone maker had posted 17.57 trillion won in profit.
Like other chipmakers, the South Korean tech giant has struggled in an environment where the price and demand for memory chips have been low for almost a year due to inventory adjustments and a supply glut.
But the industry-wide situation appears to be improving and there are signs of broad-based recovery, according to Sanjeev Rana, a senior analyst at CLSA.
· Hong Kong leader Carrie Lam said on Tuesday her administration had no plans to use emergency powers for the introduction of other laws and that the Chinese territory was equipped to handle the current situation on its own as the city braced for further demonstrations through the week.
· Prospects for progress in U.S.-China trade talks dimmed on Monday after Washington blacklisted Chinese companies over Beijing’s treatment of predominantly Muslim ethnic minorities, and President Donald Trump said a quick trade deal was unlikely.
· The British government is preparing for Brexit negotiations to end this week, the Spectator magazine reported late on Monday, citing a contact in Downing Street.
· Japanese Prime Minister Shinzo Abe said on Tuesday he expects Bank of Japan Governor Haruhiko Kuroda to make an appropriate decision on monetary policy while weighing the benefits and costs of each step.
· German industrial output rose unexpectedly in August, data showed on Tuesday, providing a shimmer of hope that an expected contraction in Europe’s biggest economy in the third quarter would not be steep.
Industrial output rose by 0.3% on the month, figures released by the Statistics Office showed, confounding expectations for a drop of 0.1%.
· “The Chinese, they would like to wait out President Trump ... they may be miscalculating because if they get a President Elizabeth Warren, she’s probably going to be even tougher than Trump,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services.
Warren could bring up more issues — such as climate change — while negotiating with China, said Kaufman.
That would add to the many sticking points currently which include China’s lack of intellectual property rights protection, making it harder for the U.S. and China to seal a deal.
An NBC News/Wall Street Journal poll last month placed Warren just behind former Vice President Joe Biden as the favored candidate to win the Democratic presidential nomination.
· As Beijing and Washington return to the negotiating table looking to settle their trade dispute, experts say the Hong Kong protests could cast a “shadow” over discussions — even if the situation doesn’t directly affect the outcome of this week’s talks.
“It will just irritate the Chinese that the two [situations] are being linked,” said Richard Harris, CEO of Hong Kong-based asset management firm Port Shelter Investment Management.
But if Beijing exercises any extreme measures in Hong Kong, then there will be potential talks of sanctions and restrictions, denting any progress that has been made, Harris told CNBC’s “Squawk Box” on Tuesday.
· Washington will have to consider big concessions before a nuclear deal between the U.S. and North Korea can be reached, one professor said Monday.
His comments follow recent working-level talks between the U.S. and North Korea, which ended in a stalemate. North Korea’s chief nuclear negotiator claimed the U.S. disappointed Pyongyang by “bringing nothing to the negotiation table.” The U.S. State Department disagreed with Pyongyang’s characterization, saying that the American delegation had “brought creative ideas and had good discussions.”
Robert Kelly, associate professor of political science at South Korea’s Pusan National University, explained that the White House may need to be more open to compromise if it wants a real breakthrough.
· With just 23 days to go before the United Kingdom is due to leave the EU, the future of Brexit remains deeply uncertain and both London and Brussels are positioning themselves to avoid blame for a delay or a disorderly no-deal Brexit.
EU leaders reacted coolly to British Prime Minister Boris Johnson’s last-ditch proposals to bridge the impasse, and while negotiations are ongoing, many diplomats say the chances of a swift deal before Oct. 31 are low.
“The negotiations will probably end this week,” the Spectator magazine quoted an unidentified source in Downing Street as saying. The source added that those who hoped that German Chancellor Angela Merkel would help London were “deluded”.
“This government will not negotiate further so any delay would be totally pointless,” the source was quoted as saying. “We’ll either leave with no deal on 31 October or there will be an election and then we will leave with no deal.”
· Thailand’s economic growth rate could slow to 2.9% this year and be 3.0% in 2020, reflecting external and domestic headwinds, the International Monetary Fund said.
Last year’s growth for Southeast Asia’s second-biggest economy was 4.1%.
According to the report, there are different views among directors on whether Thailand has scope for further policy easing.
It also said “many” other directors considered the current monetary stance to be sufficiently accommodative, and noted that monetary policy should be calibrated based on assessment of financial stability risks.
· We’ll hear from Federal Reserve Chairman Jerome Powell for the first time since key economic data was reported.
Last week, the odds of an October interest rate cut soared above 90% after U.S. manufacturing data missed estimates on Tuesday, coming in at its lowest level in a decade. But Friday’s jobs report, which showed unemployment at its lowest level in 50 years, somewhat hampered recession fears.
Traders are currently pricing in a 74% chance of a 25 basis point rate cut at the Fed’s October meeting, according to the CME FedWatch tool.
· A slew of economic data comes in Tuesday. First up, we’ll get a read on China’s economy when Caixin PMI for September is reported. We’ll also get German industrial production data for the month of August, and the National Federation of Independent Business will release the results from its monthly optimism survey.
At 8:30 a.m. ET, U.S. producer prices for September will come in, followed by consumer prices on Thursday. The PPI reading can help determine the overall health of the economy since it provides insight into how much businesses are spending on raw goods and services.
· Oil prices rose on Tuesday as unrest in crude producers Iraq and Ecuador raised supply concerns and demand worries were put on hold as investors awaited the outcome of U.S.-China trade talks this week.
Brent crude LCOc1 rose 44 cents, or 0.8%, to $58.79 a barrel by 0652 GMT, while U.S. West Texas Intermediate (WTI) crude CLc1 was at $53.17, up 42 cents, or 0.8%.
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