· The dollar held firm on Monday after data showed surprise strength in the U.S. jobs market, but the currency was restrained from moving higher by worries about an escalation in the U.S.-China trade war.
The dollar index =USD stood almost flat at 97.706 in mid-Asian trade, after rising 0.3% on Friday. The euro traded at $1.10575 EUR=, after hitting a one-week low of $1.10395 on Friday.
The dollar changed hands at 108.58 yen JPY=. It had lifted to 108.92 yen on the U.S. jobs data before losing momentum.
U.S. nonfarm payrolls increased by 266,000 jobs last month, the biggest gain in 10 months, while the unemployment rate ticked back down to 3.5%, its lowest level in nearly half a century.
Those figures suggested the Trump administration’s 17-month trade war with China, which has plunged manufacturing into recession, has not yet spilled over to the broader U.S. economy.
Still, investors think that could change if trade tensions escalate further, especially if Trump goes ahead with planned tariffs on some $156 billion worth of products from China from Dec. 15.
The market has been largely working on the assumption that those tariffs, which cover several consumer products such as cellphones and toys, will be dropped or at least postponed, given that Washington and Beijing agreed in October to work on a trade deal.
“Markets are sensing that both sides want to avoid a collapse of their negotiation, judging from various news headlines,” said Kazushige Kaida, chief of forex at State Street. “So the main scenario is for the dollar/yen to test mid-109 yen levels.”
Top White House economic adviser Larry Kudlow confirmed on Friday that the Dec. 15 deadline to impose the new tariffs remains in place, but added that President Donald Trump likes where trade talks with China are going.
Elsewhere, sterling traded at $1.3143 GBP=D4, not far from a seven-month high of $1.3166 set on Thursday.
· Brian Martin, Analyst at Australia and New Zealand Banking Group (ANZ) warns over getting overly bullish on GBP ahead of the Dec 12 UK election
“Opinion polls point to a Conservative victory in this week’s election. But it is not a foregone conclusion by any means. We caution about getting overly bullish on GBP ahead of the vote.
The main parties are courting voters with higher spending. Labour’s radical vision for the economy could lead to a fundamental re-mapping of the private sector’s equilibrium, beyond anything Brexit could ever do.
If Johnson wins, the UK will leave the EU on 31 January. He aims to agree an EU trade deal next year. That is highly unlikely. An extension to transition or some temporary tariff-free trade arrangement would be more pragmatic.”
· Former defense secretaries Leon Panetta and James Mattis linked the failed summits between North Korean leader Kim Jong Un and President Donald Trump to a lack of preparation and not working with allies.
“If the president of the United States is going to sit down with another leader, you better damn well be prepared in terms of what are the issues involved and what do we have to agree on so that you get something accomplished,” said Panetta of Trump’s meetings with Kim.
The Trump administration’s Dec. 15 deadline for new tariffs on China looms large, and while most strategists expect them to be delayed while talks continue, they don’t rule out the unexpected.
Trade certainly could be the most important event for markets in the week ahead, which also includes a Fed interest rate decision Wednesday and the U.K.’s election that could set the course for Brexit. If there’s no China deal, that could beat up stocks, send Treasury yields lower and send investors into other safe havens.
When Fed officials meet this week, they are not expected to change interest rates, but they are likely to discuss whether they believe their repo operations to drive liquidity in the short-term funding market are running smoothly, ahead of year end. Economic reports in the coming week include CPI inflation Wednesday, which could be an important input for the Fed.
Dan Clifton, head of policy research at Strategas, said it seems like a low probability there will be a deal in the coming week. “What the market is focused on right now is whether there’s going to be tariffs that to into effect on Dec. 15, or not. It’s being rated pretty binary,” said Clifton. “I think what’s happening here and the actions by China overnight looks like we’re setting up for a kick.”
Clifton said Trump’s approval rating falls when the trade wars heat up, so that may motivate him to complete the deal with China even if he doesn’t get everything he wants.
Michael Schumacher, director of rates strategy at Wells Fargo, said his base case is for a trade deal to be signed in the next couple of months, but even so, he said he can’t entirely rule out another outcome. It would make sense for tariffs to be put on hold while talks continue.
Because the next group of tariffs would be on consumer goods, economists fear they could hit the economy through the consumer, the strongest and largest engine behind economic growth.
· House Democrats and U.S. Trade Representative Robert Lighthizer are nearing a deal to pass a revised version of the United States-Mexico-Canada Agreement, the Wall Street Journal reported late on Sunday, citing people familiar with the matter. with the matter.
"We are very, very, very close to completion," the newspaper on.wsj.com/2RxoNOr cited an administration official as saying, who suggested the deal could be worked out by Christmas.
The USMCA, signed about a year ago, must be passed by lawmakers in all three countries, including the U.S. Congress.
· People held in controversial training camps in Xinjiang have “graduated” and new students will have the “freedom to come and go”, the government of China’s far western region said on Monday, slamming foreign estimates of the numbers detained.
Estimates publicized in foreign media were “pure fabrication”, Xinjiang’s governor, Shohrat Zakir, told reporters in Beijing, however, without giving details.
“The U.S. is getting restless and has launched a smear campaign against Xinjiang,” Zakir added. “But no force can stop Xinjiang’s progress toward stability and development.”
· The Conservative Party extended its lead over the Labour Party to 14 percentage points, up from 9 percentage points a week ago, an opinion poll by Survation for ITV’s Good Morning Britain showed on Monday.
“Markets now think the Tories will win. But if they fail to win an outright majority, that means essentially nothing is different from now and will be a fairly big shock for the market,” said Minori Uchida, chief FX analyst at MUFG Bank.
· Hundreds of thousands of protesters have filled the streets of Hong Kong in a mass show of support for an anti-government movement that shows no signs of flagging as it enters a seventh month.
The march on Sunday was mostly peaceful, in a rare break from the escalating violent scenes of recent weeks.
Chanting “Reclaim Hong Kong, Revolution of our time!”, a sea of protesters formed a two-mile-long human snake winding for blocks on Hong Kong Island, from the Causeway Bay shopping district to the Central business zone.
It was the first time in nearly four months that the march organiser, Civil Human Rights Front, had been given police permission for a mass demonstration. The organiser of million-strong marches in June estimated that 800,000 people participated in Sunday’s march. Police said 183,000 turned up.
· Oil prices fell on Monday after data showed that Chinese exports declined for a fourth straight month, sending shivers through a market already concerned about damage being done to global demand by the Sino-U.S. trade war.
Brent futures LCOc1 were down 21 cents, or 0.3%, at $64.18 per barrel by 0731 GMT, after gaining about 3% last week on the news that OPEC and its allies would deepen output cuts.
West Texas Intermediate oil futures CLc1 were down 30 cents, or 0.5% to $58.90 a barrel, having risen about 7% last week on the prospects for lower production from ‘OPEC+’, which is made up of the Organization of the Petroleum Exporting Countries (OPEC) and associated producers including Russia.
Reference: Reuters, CNBC, FX Street
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