Archives of “May 2019” month

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Sterling touches lowest since February as Brexit uncertainty drags on

  
Analysis, Forex

The pound brushed its lowest level since mid-February as the UK currency tracked a deepening sense among investors that Westminster’s cross-party talks seeking a consensus on a Brexit agreement were faltering.

At the same time, a move away from risk across global markets left sterling looking exposed, and sent it towards the lower end of its trading range.

Sterling on Wednesday fell 0.5 per cent to trade at $1.2838 in afternoon trading in London, close to its lowest level since February 15. February’s intraday low was $1.2770.

As talks between Theresa May and the opposition leader in London flag, the prime minister challenged Jeremy Corbyn to make up his mind on whether to back her Brexit compromise plan. She meanwhile prepared to put her job on the line in a House of Commons vote in the first week of June.

Mrs May told the Labour leader the government would bring forward legislation to ratify a revised Brexit deal on June 4 or 5. Defeat would probably mean the end of the road for the prime minister and her attempt to take Britain out of the EU.

In talks lasting about an hour on Tuesday night, Mrs May said the government would propose a close customs arrangement with the EU and uphold workers’ rights and environmental protections, meeting some of Labour’s demands.

Eurozone Q1 GDP second estimate +0.4% vs +0.4% q/q prelim

  
Analysis, Economy

Latest data released by Eurostat – 15 May 2019

  • GDP +1.2% vs +1.2% y/y prelim
Preliminary figures can be found here. The figures here are in-line with initial estimates, so it isn’t really telling us anything new with regards to the Eurozone Q1 economic performance. Similar to Germany, expect things to get tougher as the outlook remains blurry with US auto tariffs due and US-China trade tensions still prevailing.
EUR/USD currently holds at 1.1214, bound by a tight range on the day still. EUR/GBP sits at 0.8684, little changed on the session.

Chinese can sell debt to support Yuan (not just to punish the US)

  
Analysis, Economy

Via Bloomberg

Yuan and trade war

As the trade war has continued there has been a sell off in the Yuan which you can see here on the USD/CNY chart.

why does China want a weak Yuan

Price has sliced through a series of daily pivot points as Yuan weakness has taken hold.  On the face of it this helps Chinese exports, but this is not Beijing’s desire to have a much weaker Yuan. The reason is that China has prioritised curbing financial risks and the strategic goal of creating a global, stable currency. The last thing it wants is wild swings in the Yuan. Have a quick read about that here from the South China Post.  (more…)

Nikkei 225 closes higher by 0.58% at 21,188.56

  
Analysis, Global Indices

Asian stocks are faring better after renewed optimism in Wall Street

Nikkei 15-05

The Nikkei is closing with mild gains as markets are recovering from the beat down suffered on Monday amid lingering trade tensions between US and China. For now, risk assets are licking their wounds as things start to settle down but the dark clouds still remain so I reckon don’t look for any solid rallies to come about just yet.

US equity futures are also up by just 0.2% currently. Just be wary of more headlines to come later from Trump or from the Chinese camp. It’s very much a battle between greed and fear now, so let’s see how things will play out.

US-China trade talks reportedly broke down as China scrapped 30% of draft deal

  
Analysis, Economy

The Nikkei Asian Review reports

US China

The report says that China returned a significantly reduced version of the US draft, which then drew the ire of Trump in raising tariffs on $200 billion of Chinese goods. Adding that the original 150-page document was then cut up and reduced to just 105 pages.

Citing unnamed sources, the report goes on to say that the collapse of the negotiations was predetermined by China scrapping as much as 30% of the original draft text.
This isn’t really fresh news as we had heard of something similar last week here. However, it just further confirms that the two countries are still far apart from striking a compromise at this current point in time.
Given that last week’s talks in Washington failed to bear fruit, the stalemate between the US and China certainly looks set to drag on for quite a while now. As mentioned before, both sides are done playing nice for the time being and will poke at each other until something or someone gives way down the road.

ICYMI: China may regulate energy imports from the US

  
  Analysis

A piece that ran in China’s Global Times overnight, pertinenet to trade war developments.

Says the GT:
  • China is a big potential market for US energy, but the ongoing trade war is very likely to make China rethink its energy security and reduce its dependence on US energy exports.
  • Many wonder how China will respond if the US carries out tariff hikes on an additional $300 billion in Chinese products…  China’s counterattack will be on US exports. 
And:
  • does China have to import from the US?
  • The answer is no. Thanks to trade war fears and Washington’s political uncertainty, the US is perhaps now the last choice for China in terms of energy trading. 

Jeff Gundlach says there is weakness showing up in US economic indicators

  
  Analysis

Gundlach’s regular conference call – he says weakness showing up in the indicators

And:
  • US GDP growth appears to be based ‘exclusively’ on government, corporate and mortgage debt

I reckon there might be more to come  from JG. there usually is 😀

Here we go:
  • Could have a USD 4 tln deficit if the recession is steep enough
  • Atlanta Fed GDP-Now forecast is down around 1.6%
Gundlach's regular conference call - he says weakness showing up in the indicators
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