Archives of “July 19, 2019” day

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US-China trade war could become a currency war – Fitch

  
  Analysis
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I reckon it already has…

Dollar yuan

According to Fitch Ratings’ global head of sovereigns, James McCormack, the trade war between US and China could possibly turn into a currency war moving forward:

“I do not want to suggest that the trade war is going to become a currency war – but it could. There’s an increased amount of discussion on how the US could influence the value of the dollar.”

On trade discussions itself, McCormack argues that China may slow down negotiations as they aren’t in a hurry whereas Trump wants to get things done before the election next year.
As for my own thoughts, we already have the makings of a currency war but it’s just that we’re not seeing an explicit or full-fledged one just yet.
The Fed may be the one implementing exchange rate policy in the US but ultimately, any decision stems from the Treasury and Mnuchin is the one dictating that side of things. Yesterday, he said that there isn’t any change to the dollar policy for now.
However, the fact that we’re seeing so much talk about from the Trump administration about wanting a weaker dollar is in itself a shift in stance in my books. That cannot be a clearer signal that the dispute goes beyond trade issues.

Nikkei 225 closes higher by 2.00% at 21,466.99

  
Analysis, Global Indices

Asian equities buoyed by dovish chatter from Fed officials about a rate cut

Nikkei 19-07

Despite some pullback in the dollar and Fed expectations since overnight trading, equities are still in a more buoyant mood and are also helped by the fact that Microsoft earnings beat expectations handily with the forecast also looking more upbeat.

That is leading to gains seen among Japanese stocks with tech leading the charge. The Hang Seng and Shanghai Composite are also trading higher by 1.1% and 0.7% respectively and the positive vibes should feed through into European trading.
USD/JPY holds firmer at 107.65 at session highs on the more upbeat tones here and in Treasury yields, with 10-year yields up by 2.2 bps to 2.047% currently.

The Fed just doesn’t want to be bullied by the market

  
  Analysis

But they do not have the capacity to fight back either

Fed

Or at least risk a backlash in market reaction like the one we saw in overnight trading. It’s unimaginable to believe that John Williams would not know that his “academic” remarksyesterday will produce a profound market reaction.

The need for his own New York Fed branch to clarify the situation shows that the central bank doesn’t want the market to take the lead going into the FOMC meeting on 31 July. Or at least they don’t want the market to have the right/wrong idea about it.
In short, the Fed wants to be able to communicate potential future changes and shift in guidance on their own terms and not be bullied by the market into deciding when and by how much they should adjust interest rates.
That has been the case since the Fed began tightening policy back in December 2015, that markets have telegraphed and priced in when the Fed should move and they have been bullied (based on their guidance to some extent) into making those decisions.
This is one of the reasons why the Fed changed up their meetings to include a press conference at each and every one this year. The whole idea is to take back some control and keep markets on their toes.
As for the upcoming July meeting, I don’t see how the Fed can escape from a 25 bps rate cut but they have some propensity to keep markets guessing about whether this will be a “one and done” case or the start of an easing cycle.
In my view, that’s what they are trying to keep in their locker. It’s unthinkable to think that they’d waste a significant portion (50 bps) of the buffer they’ve built up over the past five years so I’m in 25 bps rate cut camp.
But the Fed should realise that if it doesn’t want to be bullied, then policymakers will have to be more firm in their communication. This latest debacle is certainly no example of that.
I reckon the Fed will punt (as they always do when they can afford to) in July, leaving the door open for potentially more cuts to follow and that may spell trouble for the dollar in the reaction to the decision – even if the central bank isn’t likely to act on that.

Oil news (this an ICYMI) – IEA revising oil demand growth forecast down on slowing economy

  
  Analysis
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Oil managed a pop in price overnight on tensiosn in the Gulf.

Greg had the report;
  • Pres. Trump: US ship took defensive action against Iranian drone
Just scanning through the other oil reports and this is one to take note of:
  • The International Energy Agency is reducing its 2019 oil demand forecast due to a slowing global economy
  • forecast to 1.1 million barrels per day (bpd
  • may cut it again if the global economy and especially China shows further weakness
  • forecast last year was 2019 oil demand would grow by 1.5 million bpd
  • cut the growth forecast to 1.2 million bpd in June this year

Major US stock indices close with gains

  
Analysis, US Market

Dow ekes out a small gain at the close.  S&P index almost makes it to 3K but falls short

The major US stock indices of closing the day with gains. The Dow eked out a small gain at the close. The S&P index was the largest percentage gainer, reaching a high of 2998.28, just short of the 3000 level.
The closing numbers are showing:
  • S&P index up to 10.69 points or 0.36% at 2995.11
  • NASDAQ index of 22.036 points or 0.27% at 8207.24
  • Dow rose 3.12 points or 0.01% at 27222.97.
Below is a graphical look of the percentage changes for the days high, low and close:
Dow ekes out a small gain at the close.  S&P index almost makes it to 3K but falls shortSome winners today included:
  • IBM, +4.59%
  • Chewy, +3.57%
  • micron, +3.00%
  • Intuitive Surgical, +2.51%
  • Broadcom +1.65%
  • Morgan Stanley, +1.51%
  • Wells Fargo, +1.37%
  • Citigroup, +1.36%
  • Stryker, +1.19%
  • Apple, 1.14%
  •  Intel, +1.11%
  • McDonald’s, +1.03%
  • American Express, +1.03%
Losers included
  • Netflix, -10.27%
  • Slack, -4.39%
  • Boeing, -2.28%
  • Unitedhealth, -2.33%
  • QUALCOMM, -1.3%
  • AMD, -1.79%
  • Alibaba, -1.15%
  • 3M, -0.96%
  • Exxon Mobil, -0.85%
  • Box, -0.82%
  • Amazon, -0.71%
  • Walt Disney, -0.67%
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