· Dollar near 2-month high as economic recovery risks loom
The dollar hovered near a two-month peak against a basket of currencies on Monday, as doubts about recovery persisted ahead of a barrage of economic data and political developments in the United States.
While a rebound in U.S. stocks on Friday has helped to curb the ascent of the dollar, deemed as a safe-haven, signs of slowdown in the nascent recovery from the pandemic and political uncertainties have kept investors on guard.
The dollar index stood little changed at 94.530. It hit a two-month high of 94.745 last week and posted its biggest weekly rise since early April.
The euro changed hands at $1.1635, having dropped to $1.16125 on Friday, its lowest in two months.
The British pound stood at $1.2767, slightly above Wednesday’s two-month low of $1.2676.
“The dollar’s rise reflects unwinding of (dollar short) positions. There were two main drivers, rise in real U.S. yields and risk-off trades,” said Tatsuya Chiba, manager of forex trading at Mitsubishi UFJ Trust Bank.
The yield on U.S. inflation-linked bonds, known as real yields, have risen almost 20 basis points after touching a record low earlier this month.
On the whole, higher yields, real or nominal, tend to support a currency. Traders have noted there has been a particularly strong correlation between the U.S. real yield and the dollar over the last few months.
Against the yen, the dollar was more subdued at 105.46 yen.
· Investors now look to the first U.S. Presidential debate on Tuesday as the election in early November has started to loom large.
Ahead of the debate, the New York Times reported on Sunday President Donald Trump paid extremely little in income taxes in recent years as heavy losses from his business enterprises offset hundreds of millions of dollars in income.
Few investors now expect the U.S. Congress to pass any stimulus package, seen as vital to support the pandemic-stricken economy, before the election.
But there are growing worries the economic recovery is slowing as many of the stimulus programs have expired, curbing consumer spending.
The week provides markets with more U.S. data to gauge the health of the world’s biggest economy, including consumer confidence on Tuesday, a manufacturing survey and consumer data on Thursday and jobs data on Friday.
· U.S.-China tech tensions won’t go away even if Biden wins election, analyst says
Tensions around technology will remain between the U.S. and China, even if Democratic presidential nominee Joe Biden wins the U.S. election in November, according to an analyst.
“Imagine a scenario where Biden becomes president, I don’t think on the technology issues … (they) are going to go away in any meaningful manner,” said Taimur Baig, chief economist and managing director at DBS Group Research. ”It may be less volatile, it may be more rules based, but the tensions will remain.”
While Republicans have embraced Trump’s “American First” agenda, abandoning traditional party goals such as unfettered trade, Biden has slammed the trade war with China — saying that tariffs have hurt American businesses and consumers. Still, he called for the U.S. to “get tough on China.”
Trade experts have said that Biden could be under pressure to continue the tough stance on China — and keep those tariffs in place.
“Now, I think the U.S. can very legitimately, whether Biden or Trump, say they don’t want China’s military to have access to any U.S.-made tech hardware, but that still leaves out large swathes of consumer devices that also use chips, and for that, it will be very hard to make a national security argument,” he added.
· U.S. sanctions on chipmaker SMIC hit at the very heart of China’s tech ambitions
The U.S. government has reportedly imposed restrictions on exports to SMIC, China’s biggest chip manufacturer, a move that threatens Beijing’s push to become more self-reliant in one of the most critical areas of technology.
Suppliers for certain equipment to SMIC will need to apply for an export license, according to a letter sent to companies by the U.S. Department of Commerce, reported by several media outlets. The commerce department claims there is “unacceptable risk” that equipment sold to SMIC may be diverted to “military end use.”
The move threatens to hit at the heart of China’s plans to boost its domestic semiconductor industry, a need that has been accelera
· British ministers prepare for social lockdown in northern Britain, London: The Times
The British government is planning to enforce a total social lockdown across a majority of northern Britain and potentially London, to combat a second wave of COVID-19, The Times reported late on Sunday.
Under the new lockdown measures being considered, all pubs, restaurants and bars would be ordered to shut for two weeks initially, the report said.
· Sterling traders not panicked yet by new Brexit brinkmanship
Britain may be heading for a no-deal Brexit in three months, but among traders in London the feeling so far is one of deja vu rather than a panicky rush to dump UK assets.
After Britain threatened to ditch parts of its European Union divorce deal this month, markets are pricing in a 40%-45% chance of exiting the EU trading bloc without any alternative arrangements at the end of 2020. Some banks see it higher.
Cash sterling weekly turnover rose 35% in the third week of September from late August, Refinitiv data shows -- but is below most weeks in September and October in 2019 and 2018, when worries about a no-deal Brexit intensified before deadlines to reach earlier agreements with the EU.
True, sterling has fallen 5.8% this month from $1.3481 GBP=D3 on Sept. 1 to $1.27, reversing August's gains. But analysts say that move has been exaggerated by a general bout of risk aversion favouring the dollar rather than just Brexit fears.
The pound is well above last September’s low of $1.1959.
· Spain to revise 2020 GDP contraction forecast to 10%-11%, Europa Press says
The Spanish government plans to revise its forecast for economic contraction this year to between 10% and 11% from a previous 9.2% announced in May, newswire Europa Press reported Sunday, citing sources from the government.
The government will update its GDP forecast for this year in early October and is likely to update its budget deficit target too to a wider deficit than the 10.3% of GDP target announced in May, the news wire said.
The Spanish economy contracted a record 17.8% in the second quarter compared with the previous quarter and 21.5% compared with the same quarter a year earlier.
· China Evergrande jumps over 10%, says making progress on debt reduction
Hong Kong shares of China Evergrande Group 3333.HK rose more than 10% after the property developer said all measures to reduce debt had achieved positive and notable results.
Evergrande also said the Hong Kong stock exchange had approved its plan to spinoff its property management business.
Investors sold off China Evergrande’s shares and bonds on Friday after a leaked document showed the nation’s second-biggest property developer by sales had sought government help to avert a cash crunch.
· China's factory activity likely grew at slightly faster pace in September: Reuters poll
China’s factory activity likely expanded at a slightly faster pace in September, a Reuters poll showed on Monday, as the economy extends a steady recovery from the coronavirus crisis.
The official manufacturing Purchasing Manager’s Index (PMI) is expected to pick up moderately to 51.2 in September from August’s 51, according to the median forecast of 28 economists polled by Reuters. A reading above 50 indicates an expansion in activity on a monthly basis.
China’s vast industrial sector is steadily returning to the levels seen before the pandemic paralysed huge swathes of the economy early this year.
· South Korea's September exports seen growing for first time in seven months: Reuters poll
South Korea’s exports likely grew for the first time in seven months in September due to more working days than a year earlier and heavy shipments of microchips as China’s Huawei Technologies stockpiled ahead of U.S. sanctions, a Reuters poll showed.
Going forward, economists surveyed by Reuters expected South Korea’s exports to suffer as major overseas markets have been hit by second waves of coronavirus, which will keep global demand subdued.
September shipments were seen rising 2.0% from a year earlier, according to a median estimate of 18 economists, the first growth since February and rebounding sharply from a 10.1% plunge in August.
· India's central bank to keep rates on hold, provide economic forecasts
The Reserve Bank of India is expected to keep key rates unchanged this week, but may for the first time since February provide guidance on how the economy is performing amid the coronavirus pandemic.
All 66 respondents in a Reuters poll expect the repo rate INREPO=ECI to remain unchanged at 4.0% after its policy review on Thursday, and a large majority see no cuts until the January-March quarter. The RBI will then likely stay on hold until the end of 2021.
India is gradually reopening its economy from a lockdown but economic activity remains depressed as coronavirus cases top six million, the second-highest globally.
· Malaysia's August exports drop 2.9% year-on-year, worse than forecast
Malaysian exports dropped 2.9% in August from a year earlier, contrary to expectations for an increase, as shipments to key markets tumbled and demand for manufacturing, agriculture and mining goods dropped, government data showed on Monday.
The contraction was far below the 4.8% growth forecast by analysts in a Reuters poll, and a sharp dip from the 3.1% rise in July.
Imports in August shrank by 6.5% from a year earlier, slowing from the 8.7% decline in the prior month, data from the International Trade and Industry Ministry showed. Analysts had expected a fall of 4.3%.
Malaysia’s trade surplus narrowed to 13.2 billion ringgit ($3.17 billion), moderating from a historic high of 25.15 billion ringgit in July.
· Malaysia to impose COVID-19 restrictions in some parts of largest palm producing state Sabah
Malaysia will impose movement control restrictions in four districts in its largest palm oil producing state Sabah to contain a recent surge of coronavirus infections, the Defence Minister said on Monday.
· Oil slips as surge in virus cases cloud demand recovery
Oil prices dipped on Monday as rising coronavirus cases upset hopes for a smooth recovery in fuel demand, with the main crude benchmarks on track for their first monthly falls in multiple months after last week’s slips.
Brent crude fell 23 cents, or 0.6%, to $41.69 a barrel by 0243 GMT after dropping 2.9% last week. U.S. West Texas Intermediate was at $40.04 a barrel, down 21 cents or 0.5%, following a 2.1% decline last week.
Brent is on track to fall for the first month in six while WTI is headed for its first monthly loss since April as the reimposition of mobility curbs in some countries clouds the outlook on fuel demand recovery.
Reference: Reuters, CNBC
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