· The dollar fell against the safe-haven Japanese yen on Tuesday, pressured by renewed worries about trade, but the greenback strengthened against other currencies as Federal Reserve Chair Jerome Powell refrained from committing to more rate cuts even after data showed an unexpected drop in U.S. producer inflation.
The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 99.088 after touching highs around the 99.2 handle yesterday.
The Japanese yen traded at 106.97 against the dollar after strengthening from levels above 107.3 in the previous session. The Australian dollar changed hands at $0.6729 after falling from levels above $0.675yesterday.
· U.S. producer prices unexpectedly fell in September, leading to the smallest annual increase in nearly three years, likely giving the Federal Reserve further room to cut interest rates for the third time this year in October.
The producer price index for final demand dropped 0.3% last month, weighed down by decreases in the costs of goods and services, the government said. That was the largest decline since January and followed a 0.1% gain in August.
In the 12 months through September the PPI increased 1.4%, the smallest gain since November 2016, after rising 1.8% in August. Economists polled by Reuters had forecast the PPI nudging up 0.1% in September and advancing 1.8% on a year-on-year basis.
The weak producer inflation readings reported by the Labor Department on Tuesday came against the backdrop of a slowing economy amid trade tensions and cooling growth overseas. The Trump administration’s 15-month trade war with China has eroded business investment and pushed manufacturing into recession.
· The pound has slumped to its lowest level in more than a month, as hopes fade that a Brexit deal will be struck.
With weeks left before the 31 October Brexit deadline, sterling came under selling pressure on the foreign exchanges on Tuesday, sliding to its lowest point against both the euro and the dollar since early September, after negotiations took an acrimonious turn.
In a sign of growing fears for the economy, the pound dropped by about half a cent against the single currency to trade at €1.115, while also falling by a similar amount against the US dollar, to $1.22.
· China’s Ministry of Commerce said Tuesday that it “strongly urges” the U.S. to stay clear of the country’s domestic issues, after the White House blacklisted a slew of Chinese companies due to alleged human rights violations against Muslim minorities in China’s far-western region of Xinjiang.
“We strongly urge the U.S. to immediately stop making irresponsible remarks on the issue of Xinjiang” and to “stop interfering” in “China’s internal affairs, and remove relevant Chinese entities from the list of entities as soon as possible,” a spokesperson from the ministry said Tuesday in a statement, according to a Google translation.
“China will also take all necessary measures to resolutely safeguard China’s own interests,” the spokesperson said.
The comment came after tensions between the U.S. and China rose ahead of the highly anticipated trade talks this week. The U.S. on Monday banned 28 Chinese companies from doing business with American firms without being granted a U.S. government license due to human rights issues.
The Trump administration on Tuesday put visa restrictions on Chinese officials “who are believed to be responsible for, or complicit in, the detention and abuse” of Muslim minority groups in Xinjiang.
· Some of China’s biggest surveillance and artificial intelligence (AI) firms have defended themselves after being put on a U.S. blacklist and being accused of human rights abuses related to minority Muslims in northwest China.
Just days before the next round of trade talks between the U.S. and China, Washington put 28 Chinese entities on the government’s so-called Entity List, which restricts these organizations from doing business with American firms. It is the same blacklist Chinese smartphone maker Huawei was placed on earlier this year.
· The Federal Reserve will soon start growing its balance sheet again, a response in part to the jolt to overnight lending markets in September, Chairman Jerome Powell said Tuesday.
How the Fed will go about expanding the securities it holds will be explained in the coming days, though Treasury bill purchases will be involved, the central bank chief said during a speech in Denver, though Powell stressed the approach shouldn’t be confused with the quantitative easing done during and after the financial crisis.
“This is not QE. In no sense is this QE,” he said in a question and answer session after the speech.
· Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday said the U.S. central bank is having a hard time estimating the effects of trade wars such as the ongoing U.S.-China dispute on the U.S. economy.
“It’s almost, your guess is as good as mine,” Kashkari said at a town hall in St. Cloud, Minnesota. Because trade wars could slow the economy not just through tariffs but also by scaring businesses and households into holding back on spending, the effects are “almost impossible” to measure, he said, though the Fed is trying to model them.
Kashkari does not vote on policy this year at the U.S. central bank but does participate in regular policysetting meetings.
· The U.S. Federal Reserve could cut interest rates again as it would provide a little bit more insurance for the U.S. economy against potential headwinds and boost inflation, Chicago Fed President Charles Evans said on Tuesday.
“I think another rate cut would help for generating more inflation. It would help for a little more insurance. Is it necessary and essential? I’m not sure. But I’m certainly open minded to those arguments,” Evans told reporters following an event in Chicago, in which he also said he was still optimistic about the U.S. economic outlook.
Last week Evans said he would go into the Fed’s next policy meeting on Oct. 29-30 “extremely open-minded” to making further adjustments to monetary policy in either direction.
· The growth of global value chains, a key driver of trade and poverty reduction in emerging market countries, has largely stalled in the past decade and is under threat from trade conflicts and emerging new technologies, the World Bank said on Tuesday.
· The global economy is experiencing a “synchronized slowdown,” the new head of the International Monetary Fund said on Tuesday, warning that it would worsen if governments failed to resolve trade conflicts and support growth.
In a blunt inaugural speech since taking the helm of the global crisis lender on Oct. 1, IMF Managing Director Kristalina Georgieva said trade tensions had “substantially weakened” manufacturing and investment activity worldwide.
“There is a serious risk that services and consumption could soon be affected,” she said
· Demand for newly built houses in England has fallen to a six-year low as home buyers await more certainty over Brexit before going ahead with a major purchase, according to an annual survey of small construction companies.
· European Parliament head David Sassoli said on Tuesday after meeting British Prime Minister Boris Johnson that “there has been no progress” in Brexit talks.
· The European Union accused Britain of playing a “stupid blame game” over Brexit on Tuesday after a Downing Street source said a deal was essentially impossible because German Chancellor Angela Merkel had made unacceptable demands.
· It will be very difficult to secure a Brexit agreement by next week with big gaps remaining in the British position, Irish Prime Minister Leo Varadkar said on Tuesday following a phone call with his British counterpart, Boris Johnson.
“I’ll certainly work until the very last moment to secure that (a deal) but not at any cost... I think it will be very difficult to secure an agreement by next week, quite frankly,” Varadkar told Irish national broadcaster RTE.
· Australian consumers turned glum in October despite three rate cuts since the start of the year as fears about the near-term economic outlook sapped their confidence, according to a key gauge.
Wednesday’s survey showed the Melbourne Institute and Westpac Bank (WBC.AX) index of consumer sentiment dived 5.5% in October, after slipping 1.7% in September.
The index was down 8.6% from a year earlier, and at 92.8 indicated pessimists far outnumbered optimists. This is the lowest level for the index since July 2015.
· Oil prices slid on Tuesday as Washington’s blacklisting of more Chinese companies dampened hopes for a trade deal between the two countries, although unrest in Iraq and Ecuador lent some support to crude prices.
Early in the session, both Brent crude LCOc1 and West Texas Intermediate (WTI) CLc1 rose more than 1%. But at settlement, Brent was down 11 cents, or 0.2% at $58.24 a barrel while WTI CLc1 fell 12 cents, or 0.2%, at $52.63.
Reference: Reuters, CNBC, The Guardian
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