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Add this to the data agenda for Tuesday 14 July 2020 – China June trade data

  
  Analysis
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Trade balance, exports and imports data are due from China today for june June 2020

There is no specific time set for the releases, and it has been very unpredictable in past months.

Yuan terms:

trade balance: expected CNY 425bn, prior was CNY 442.75bn

  • Exports y/y: expected +3.5%, prior was +1.4%
  • Imports y/y: expected -4.7%, prior was -12.7%

USD terms:

trade balance: expected $59.6bn, prior was $62.93bn

  • Exports: expected -2.0%, prior -3.3%
  • Imports: expected -9.0%, prior was -16.7%

Nikkei 225 closes higher by 2.22% at 22,784.74

  
Analysis, Global Indices
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Asian equities buoyed to kick start the new week

Nikkei 13-07

It has been a solid session for Asian equities, with the Nikkei closing at a one-month high while we are also seeing the Hang Seng post 1.1% gains and the Shanghai Composite also seen higher by 1.9% currently.

The positive spillovers from US trading at the end of last week is helping, but also the fact that US futures are keeping more optimistic so far today.
Some market participants are pointing to this Pfizer, BioNTech vaccine story as a factor, following the more positive results that were reported two weeks ago here.
In any case, risk is on and the market is looking to keep the more positive mood going into European trading today. As such, the dollar is weaker across the board alongside the yen, with AUD/USD hovering around 0.6980 currently.

AUD/USD to drop back to 0.64 by year end – global economy weakening, China retaliation

  
Analysis, Forex
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A brief summary from a late week Rabobank note on the Australian dollar:

  • investors are currently over-estimating the ability of the global economy to bounce back from the pandemic
Combined with:
  • any news that China could be targeting Australian exports in retaliation for the government’s political stance would also leave AUD vulnerable
Rabo’s view is thus:
  • we see risk of a drop in sentiment by the end of the year 
  • likely to drag AUD/USD lower
  • forecast AUD/USD at 0.64 on a six-month view
A brief summary from a late week Rabobank note on the Australian dollar:

Here’s a EUR/USD forecast (to 1.15) with the ECB expected to be optimistic this week

  
Analysis, Forex
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The European Central Bank meet this week, preview below.

  • Meeting Thursday 16 July 2020
  • Policy announcement at 1145GMT (policy likely unchanged)
Euro forecast via Danske (this from late last week):
  • We remain constructive and expect the broad USD to decline over the coming months
  • 3 month forecast is 1.15
On the upcoming ECB policy meeting
  • we expect a repetition of recent comments from various governing council members, thereby striking a cautiously optimistic tone compared to the June projections. 
  • We also expect they may decide not to use the EUR1,350bn PEPP envelope in full. 
  • No new initiatives are expected next week
  • Markets may not be prepared for a ‘less dovish’ message
  • with abundant liquidity, PEPP and APP still ongoing
  • Our key expectation is that the ECB will reiterate its stance towards supporting a recovery, with, not least, a focus on sovereign spreads. 
For spot FX,
  • the direction and stance of the ECB and euro area fiscal politics are, in our view, quite well priced and communicated (though to a lesser extent when it comes to the outcome for Brexit). In turn, it will be the breath and speed of the global recovery that sets the tone in EUR/USD, and mostly through the USD leg

European Central Bank preview

An Update :US Dollar Index ,USDJPY ,AUDUSD ,USDINR ,EURO ,YEN ,GOLD ,SILVER ,PALLADIUM ,WTI ,BRENT ,SPX 500 -Anirudh Sethi

  
  Analysis
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The dollar rallied strongly from March 9 through March 20 or the start of last week on March 23.  It has subsequently sold off and done so in dramatic fashion.  It is not clear the trigger of the stunning reversal.  Some observers attribute it to the Fed’s currency swap lines, which were offered daily (seven-day operations) to a handful of large central banks.
Others link it to the better risk appetites reflected in meaningful bounces in equity markets, but nothing as striking as the 17% rally in the Nikkei.  Even with a 915-point tumble in the Dow and a 3.3% drop in the S&P 500 before the weekend, both ended with double-digit gains on the week.  Gold’s 8.6% rally will not sit well with those who view it as a safe haven.  The 30- and 60-day rolling correlations on the percent change of gold and the S&P 500 are positive for the first time since the middle of last year and October 2018, respectively.
The technical indicators that we monitor, the MACD and Slow Stochastic, have turned down for the dollar against all the major currencies.  The poor technical condition suggests the dollar’s weakness is more than a function of month- and quarter- and fiscal year-end flows, but was technically over-extended.  We will use Fibonacci retracement and moving averages to identify potential price targets and relative strength.
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Wall Street hits new record as takeovers help spark rally

  
Analysis, US Market
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Investors gobbled up US stocks to begin the Thanksgiving week, as trade optimism and a flurry of corporate dealmaking pushed all three major indices to new record highs. The S&P 500 surpassed its peak set one week ago, with technology shares leading the way amid renewed hope the US and China can reach a preliminary trade agreement. The benchmark index climbed 0.8 per cent, ending the day near its session high.

The tech-heavy Nasdaq Composite locked up a record closing high of its own, rising 1.3 per cent. Semiconductor groups — seen as a benefactor from warmer trade relations — helped spark gains in the tech sector. The Philadelphia semiconductor index, which tracks 30 companies in the industry, leapt 2.4 per cent, its best performance in a month. The Dow Jones Industrial Average was back above the 28,000 threshold, as it added 0.7 per cent. Investors’ hopes for a thaw in the US-China trade dispute have helped stoke a record run on Wall Street in recent weeks.

The S&P 500 has traded higher in six of the past seven weeks and has gained more than 3 per cent this month. New guidelines from Beijing on strengthening intellectual property safeguards gave Wall Street renewed confidence on Monday that a “phase one” deal could materialise before December 15, when new American tariffs on Chinese goods are due to begin. China’s alleged theft of intellectual property has been a sticking point in negotiations with Washington.

A series of big deals, including LVMH’s planned $16.6bn takeover of Tiffany and Charles Schwab’s $26bn deal to combine with TD Ameritrade, also gave a boost to stocks. The rally followed on the heels of gains around the world. The Europe-wide Stoxx 600 was up 1 per cent.

The Hang Seng surged 1.5 per cent. Some safe-haven assets took a hit amid the shift to equities. Gold fell 0.5 per cent, and the Japanese yen weakened by 0.3 per cent against the US dollar. The dollar index edged fractionally higher. The yield on the 10-year Treasury note fell 1.4 basis points to 1.7603 per cent.

What lies ahead for the USD?

  
Analysis, Forex
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What is the outlook for the US dollar

What is the outlook for the US dollarThe USD has been steady versus a basket of major currencies since the start of 2019. The dollar index is trading close to September highs, which, in turn, are at the maximum levels since 2017.The current week, however, hasn’t been very positive for the American currency. So, what future awaits it? In this article, you will find the fundamental outlook for the greenback.US economy has falteredLife shows that it’s not possible to fight in trade wars and stay unharmed. The data released on Tuesday showed that the US manufacturing sector is in its worst condition in a decade: ISM Manufacturing PMI dropped from 49.1 to 47.8 in September.A reading below 50 indicates industry contraction. Given how low the latest number is, it’s certain that even if the underlying picture changes and positive factors come into play, the situation won’t be able to improve fast.And so far, there are few reasons to believe that the United States and China will achieve a big breakthrough in their negotiations. Representatives of the nations will meet next week on October 10 and 11.Although soothing comments may cheer the stock market, it will take the mutual renunciation of tariffs to amend the damage done to the economy. If talks fail, there will be more tariff hikes in the following months and hence an even stronger economic pain.Moreover, recent rumors indicate that Donald Trump is considering limiting American investment flows to China. This step, if taken, would further escalate the trade conflict.Remember that everything is interdependent in the economic world. Considering the external troubles, it’s now up to US consumers to drive economic growth. For them to be able to do that, they need ample wages.
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Crucial Update :US Dollar Index ,EURO ,YEN ,GBP ,INR ,CAD ,AUD ,PESO ,WTI ,SPX 500 -Anirudh Sethi

  
Analysis, Crude, Forex
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The Japanese yen and Canadian dollar were the only major currencies to gain against the US dollar last week.  They are also the only major currencies to appreciate against the dollar so far this year.  US President Trump’s apparent playing down of the pressure to strike a partial deal with China before the 2020 election weighed on stocks and lifted the so-called safe-haven currencies ahead of the weekend.  When everything was said and done, from the attack on Saudi Arabia to the money market squeeze in the US and the Fed’s rate cut, the dollar remained mostly within well-worn ranges.
The exceptions were idiosyncratic.  Growth concerns, both globally and domestically, saw the New Zealand dollar fall to new four-year lows ahead of the weekend.  The RBNZ meets next week, and the market has about six basis points of easing, or about a 25% chance of a cut.  The Australian dollar fell in four of last week’s five sessions and the day rose was by 1/100 of a penny, according to Bloomberg.  Sterling had threatened to break high in the second half of the week, but Ireland’s Deputy Prime Minister helped put Juncker’s seeming optimism in context.  UK Prime Minister Johnson reportedly acknowledged that the EU is unlikely to agree entirely with his proposal at the critical summit in the middle of next month.  These developments pushed sterling a cent off the highest level since July (~$1.2580).
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ICYMI – Warnings of turmoil in markets if the US intervenes in the Chinese yuan

  
  Analysis
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The Financial Times ran a piece overnight canvassing potential US intervention to drive the USD down against the Chinese currency.

The background to this is
  • strong, and stronger USD, despite the Fed’s rate cut
  • The US naming China as a currency manipulator
  • USD/CNY and USD/CNH moving above what was though as a bit of a ‘line in the sand’ at 7 (wheter it is is/was or not remains to be seen)
  • Plenty of chatter and speculation that the US admin could intervene to send the dollar lower
Via the FT:
  • One senior staffer at a London-based Chinese bank said the US could conceivably intervene in the offshore renminbi market, where the currency is traded more freely than on the mainland. But the consequences could be serious.
  • “If you take on China on the currency . . . it would be interpreted as a political act and it would throw markets into turmoil,” said the senior staffer, speaking on condition of anonymity. The political fallout would be “unprecedented”, the person added.
He says market turmoil likes that’s a bad thing? 😀
(Off to the naughty corner for those thinking what I’m thinking!)
FT piece is here, may be gated

Markets Pause Ahead of the Weekend

  
  Analysis
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Overview: The global capital markets are trading quietly ahead of the weekend.  Equity markets are mostly narrowly mixed.  Chinese shares extended their run, and the major benchmarks were up 4%+ on the week. Japan, Australia, South Korea, and India saw gains pared.  European equities were edging higher, and the Dow Jones Stoxx 600 is holding on to around a 2% gain for the week.  After closing at record highs yesterday, the S&P 500 is trading a little heavier in the electronic activity.  News that the US was ready to strike Iranian radar and missile batteries but called it off at the last moment rattled investors.  Japanese, Europe, and US 10-year benchmark yields firmed slightly, while Australia and New Zealand 10-year yields eased to new record lows.  The dollar itself is also mixed, though the Dollar Index is trading a little below its 200-day moving average (~96.65) in the European morning.  The Turkish lira and South African rand are leading most of the emerging market currencies lower.  Gold briefly extended its gains above $1400 for the first time since 2013 before pulling back in Europe.  It is poised for its largest weekly gain (~3.5%) in three years.
Asia Pacific
 
Japan reported softer price pressures and a June flash manufacturing PMI that remained below the 50 boom/bust level.  Headline CPI slipped to 0.7% in May from 0.9% in April as economists expected.  The core rate, which excludes fresh food, eased to 0.8% from 0.9%.  When fresh food and energy are excluded–more like the US and Europe core measures–prices were up 0.5% from a year ago rather than 0.6% as was the case in April.  The flash manufacturing PMI fell to 49.5 from 49.8 and reported the first drop in new orders since June 2016.  Output remained firm, and the order backlog is being absorbed, setting the stage for a potentially difficult Q3.  A bright spot may be services.  The tertiary index for April jumped 0.9% after a 0.5% decline in March.  This is the largest increase since last October.  There are no policy implications from today’s reports.  The bar to BOJ action appears a bit higher than in the US and Europe.
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