Archives of “May 2019” month

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How does Theresa May resigning change the Brexit (and sterling) equation?

  
  Analysis

Trick question, it does not!

The pound gained some ground earlier as May announced her resignation but quickly erased those gains with cable rising to 1.2710 before falling back to 1.2670 levels now. Amid all the chaos, what does this mean for the pound now?

Trick question, it does not!
Essentially, the Brexit path does not change as seen from the equation above. Regardless of a new leader, the impasse still remains. Hence, where should the pound go from here?
To put it short, it has now turned into a bit of gamble on who will be the next prime minister. Given that BoJo is favourite – and that he is a Brexiteer – the pound is basically trading on the odds of him taking over. If he is still going to be favourite, expect further downside pressure as a no-deal outcome becomes a likely possibility.

China envoy to US says no official talks scheduled between Trump and Xi

  
Analysis, Politics

China envoy to US, Cui Tiankai, speaks to Bloomberg

  • Says that talks must be based on mutual respect
  • Says what is happening to Huawei is rather unusual
  • Says that US allegations on Huawei are ‘groundless’
There’s your bit of headline risk on the day. The headline sort of contradicts what Mnuchin hinted at overnight with his comments here. US equity futures have pared some of their earlier gains on the back of the comments here.
Watch out in the session ahead, we could be in store for a bumpy end to the week.

Brexit: Theresa May said to be expected to make a statement by mid-morning

  
  Analysis

Reuters reports

May

In case you’re catching up on Brexit events, the situation now is that May is going to be meeting up with 1922 Committee chair, Graham Brady, later where she is expected to give a firm date on her departure.

It wouldn’t really surprise me if she announces that it will be today because frankly, she’ll only receive further backlash internally after the Tories get beat down in the European Parliament elections by the Brexit Party.

Facebook removed 2.2bn fake accounts in first quarter

  
  Analysis

Facebook said it took down a record 2.2bn fake accounts in the first three months of this year, only slightly less than the total number of monthly active users on the social media network, in a sign that its battle against bad actors is far from over.

The company disabled 1.2bn fake accounts in the final quarter of 2018, and 754m accounts in the quarter prior to that, according to its bi-annual report on community standards enforcement published on Thursday.

The sharp rise to 2.2bn in the latest quarter was “automated attacks by bad actors who attempt to create large volumes of accounts at one time”, Guy Rosen, Facebook’s vice-president of integrity said in a blog.

But the company added that many were taken down within minutes of registering and therefore were not included in its monthly active user count, which stands at 2.38bn.

Facebook has ramped up its security spending in an effort to better prevent abuse on the platform as well as the spread of misinformation, after evidence emerged of attempts by Russia to interfere in the US 2016 election using the network.

It now employs 30,000 security staff, many as content moderators, and has invested in developing artificial intelligence and other technologies for automatically detecting content that violates its policies. (more…)

Trump tariffs ‘almost entirely’ shouldered by Americans, IMF says

  
Analysis, Politics

American businesses and consumers are absorbing the bulk of the U.S. tariffs’ cost as the trade war with China drags on, expert research finds, even as President Donald Trump continues to insist otherwise.

The cost of Washington’s tariffs on Chinese imports “has been borne almost entirely” by American importers, the International Monetary Fund said in a report Thursday.

Tariffs on $200 billion worth of Chinese goods rose to 25% from 10% starting May 10. The new round covers products ranging from consumer electronics to food to clothing. Trump has also threatened higher tariffs on the remaining $300 billion in Chinese imports.

Using Bureau of Labor Statistics price data on imports from China, IMF researchers found “almost no change in the (ex-tariff) border prices of imports from China, and a sharp jump in the post-tariff import prices matching the magnitude of the tariff.” This suggests that American companies have been paying the same price, plus the duties.

Some of these tariffs have been passed on to U.S. consumers, like those on washing machines, “while others have been absorbed by importing firms through lower profit margins,” the IMF report said. “A further increase in tariffs will likely be similarly passed through to consumers.”

The Federal Reserve Bank of New York estimated Thursday an $831 cost to the typical household annually when taking into the recent 25% tariff hike into account — double the household cost posed by 2018 tariffs. (more…)

US Commerce dept proposes imposing duties on countries that undervalue their currencies relative to the USD

  
  Analysis

No more free lunch via devalued currency

Just a headline at this stage, but you get the gist anyway.
Oh, here we go, Commerce Secretary Wilbur Ross statement:
This change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm U.S. industries
Foreign nations would no longer be able to use currency policies to the disadvantage of American workers and businesses
(via Reuters)
I wonder if this is aimed at a country that maybe sets the rate for its currency each day and intervenes to stop it moving too much from that rate. You know …  just as a hypothetical question.
–
ps. Such a country is China. Each day authorities set a reference rate for the onshore yuan and restrict its movement to +/- 2%.

ICYMI: US to restrict of high-tech goods to China even further

  
Analysis, Politics

A piece in Politico overnight, citing ‘two people familiar with the plans’

  • Trump administration taking steps towards more restrictions on exports of high-tech goods to China
  • Commerce Department to roll back regulations making it easier for U.S. companies to export certain goods that have both civilian and military purposes
  • Commerce will also recommend ending a general policy of approving export licenses for that group of goods if they go to civilian use and instead require reviews on a case-by-case basis
Adds Poltico:
  • The expected moves would make it harder for China to acquire U.S. technology.
A piece in Politico overnight, citing 'two people familiar with the plans'

USD/JPY to head to 108 as safe have flows transition

  
Analysis, Forex

Rabobank argue that safe haven flows are, at the margin, shifting towards the USD at the expense for JPY and CHF

To summarise:
  • JPY and CHF have traditionally been the FX market’s preferred safe haven currencies
  • USD to an extent, but its had a traditionally more volatile relationship with the status of safe haven
  • Since the start of 2017 … the fact that JPY strength against the USD has not been more pronounced may seem out of kilter with geopolitical events in this period … . tensions between US and North Korea, between the US & Iran, concerns about China’s growing influence,  military strength
For the currencies:
  • “We would argue that much of the safe haven flow that may have been previously destined to the JPY has been diverted to the USD on the back of the improved yield associated with the USD.  The recovery in US growth in recent years and the Fed’s ability to start normalising its policy was thus freeing the BoJ from unwanted safe haven flows and currency strength.  While we expect that this effect will continue to offer USD/JPY support in the months ahead, it is still likely that the JPY will see bout of buying pressure on worrying news events and in particular geopolitical concerns.”
  •  “Given growing recognition that that the current dispute between the US and China could be more cold war than trade war and on the back of growth tensions regarding Iran we see risk for USD/JPY to push towards the 108.00 area in the coming months.  That said, we expect the USD to outperform a wide basket of other currencies.”
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