The Australian AUD=D3 and New Zealand dollars NZD=D3 led gains against the greenback after Bloomberg reported the United States is weighing a currency pact with China which could see a planned tariff hike next week being suspended.
· A currency pact would pave the way for further negotiations on core issues such as intellectual property and forced technology transfers with reports that Beijing has offered to increase purchases of agricultural goods further signaling a thaw in trade tensions.
“It remains to be seen whether a partial trade deal will be acceptable for President Trump who wants to secure a broader agreement,” MUFG strategists said.
· Against a basket of its rivals .DXY, the dollar weakened 0.3% to 98.845, nearing a one-week low. It weakened as much as 0.4% versus the New Zealand and Australian dollars.
The Chinese currency in the offshore market CNH=D3 gained for a second day, rising 0.3% versus the greenback to 7.1145 yuan per dollar.
The pound climbed 0.3% to $1.2241, though it remained close to a one-month low amid uncertainty over Britain’s exit from the European Union before a slew of British data.
· Danske Bank analysts point out that today the 13th round of high-level US-China trade talks kick off in Washington and continues tomorrow.
Key Quotes
“We still see a good chance of an interim deal after China yesterday said it was still ready to make such a deal despite the US blacklisting of Chinese companies. FT also reported that China would offer to buy 10 million tons of soy beans in return for the US taking coming tariff hikes off the table. We do not know exactly when statements will come out of the talks but a good guess is late Friday (European time).”
“The minutes from the recent ECB meeting are set to be interesting reading. Since the meeting there have been frictions within the Governing Council, which peaked with the resignation of ECB board member Sabine Lautenschläger. Furthermore, we have seen conflicting comments in the media, in which Chief Economist Philip Lane said that he did not believe that the ECB had delivered a big package and that it could cut rates further.”
“The US releases core inflation numbers and weekly initial jobless claims. We expect core inflation to stay unchanged at 2.4% y/y in line with consensus. Jobless claims are still at a low level around 220k, signalling a low rate of layoffs despite the slowing economy.”
“UK PM Boris Johnson is set to meet with his Irish counterpart Leo Varadkar on Thursday. A deal looks increasingly unlikely and an extension beyond 31 October and a UK election are more likely.”
· Analysts at TD Securities note that the latest FOMC minutes shed light on a Fed that remains divided following its decision to ease rates again at the September meeting.
Key Quotes
“This was already evident on the fact that the dot plot is now split on three clear groups, and also on the three voters who dissented against the rate cut decision. Officials remained generally positive on the economy, while also acknowledging the external and persistent risks to the outlook.”
“Moreover, soft inflation and inflation expectations remain important factors behind the decision to ease for many officials. Also notable, several Fed officials began discussions about how to communicate to the market the possible end of further accommodation. All in, we judge that the data released since the September FOMC meeting continues to support our view for an additional rate cut this month.”
· The United States’ and China’s top trade negotiators were set to meet on Thursday for the first time since late July to try to find a way out of a 15-month trade war as new irritants between the world’s two largest economies threatened hopes for progress.
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Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will seek to narrow differences enough to avoid a scheduled Oct. 15 tariff rate increase on $250 billion worth of Chinese goods.
But the atmosphere surrounding the talks was soured by the U.S. Commerce Department’s decision on Monday to blacklist 28 Chinese public security bureaus, technology and surveillance firms, citing human rights violations of Muslim minority groups in China’s Xinjiang province. A day later, the U.S. State Department imposed visa restrictions on Chinese officials related to the Xinjiang issue.
If negotiations break down again, by Dec. 15, nearly all Chinese goods imports into the United States — more than $500 billion — could be subject to punitive tariffs in the dispute that erupted during U.S. President Donald Trump’s time in office.
· The New York Times reported Wednesday evening stateside that U.S. President Donald Trump’s administration is set to grant licenses that would allow American firms to sell nonsensitive supplies to Huawei. Earlier this year, the White House banned sales to the Chinese telecommunications giant, citing national security concerns. The ban was subsequently delayed by the administration to allow American firms to make other arrangements.
· The White House is looking at rolling out a previously agreed currency pact with China as part of an early harvest deal that could also see a tariff increase next week suspended, according to people familiar with the discussions, Bloomberg News reports.
· The US is not opposed to trade with China, however, the latter's trade practices have gotten worse, the US Commerce Secretary Wilbur Ross said on Thursday.
Key quotes
The US would prefer not to use tariffs, but tariffs are forcing China to pay attention to our concerns
China causes massive market dislocations due to overcapacity and dumping excess production
If China abides by global trade rules every nation will benefit
· Surprised and upset by the U.S. blacklisting of Chinese companies, China has lowered expectations for significant progress from this week’s trade talks with the United States, Chinese government officials told Reuters, even as President Donald Trump on Wednesday expressed fresh optimism.
Speaking to reporters in Washington, Trump said: “If we can make a deal, we’re going to make a deal, there’s a really good chance.”
“In my opinion China wants to make a deal more than I do,” Trump added.
· German exports fell by more than expected in August, data showed on Thursday, reinforcing expectations that a manufacturing slump is pushing Europe’s largest economy into recession.
The Federal Statistics Office said seasonally adjusted exports fell 1.8% on the month while imports rose 0.5 %. The trade surplus narrowed to 18.1 billion euros ($19.88 billion)after an upwardly revised 20.5 billion euros in the prior month.
August’s drop in exports was the steepest since April.
A Reuters poll of economists had pointed to a 1.0% drop in exports and a 0.2% fall in imports. The trade surplus was expected to come in at 19.1 billion euros.
· France’s Finance Minister Bruno Le Maire said on Thursday the European Union would impose sanctions on U.S. products if no settlement was reached with Washington on a trade dispute over illegal EU subsidies to the aviation industry.
· Japan's economy is making progress but has not emerged completely from deflation, Japan's Economy Minister Nishimura said on Thursday.
Key quotes
Japan's economy making progress toward emerging from deflation thanks to prolonged recovery
BOJ, govt will work closely together, take all necessary steps to sustain recovery
Bank of Japan's (BOJ) loose monetary policy has boosted corporate fund demand and companies' spending appetite, Deputy Governor Amamiya said on Thursday.
The central bank has been running a massive stimulus program since 2013. As of now, BOJ's interest rate stands at -0.10% and the bank maintains the 10-year target of 0.00%. Even so, the economy remains miles away from BOJ's inflation target of 2%.
· Hong Kong’s metro rail system will shut early again on Thursday to allow time to repair damaged facilities, its operator said as the city braced for more anti-government demonstrations after a string of violent protests in the Asian financial hub.
· Oil prices eased on Thursday on the expectations that the resumption of U.S.-China talks will not end the trade war between the world’s two largest oil consumers, exacerbating anxiety over the global economy and fuel demand.
Global benchmark Brent crude futures LCOc1 fell 9 cents, or 0.2%, to $58.23 a barrel by 0654 GMT. U.S. West Texas Intermediate (WTI) futures CLc1 were down 12 cents, or 0.2%, at $52.47.
Reference: Reuters, CNBC, FX Street, Bloomberg
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