· Dollar on defensive as investors stick with risk, for now
The dollar was on the back foot on Tuesday as investors maintained their hope in a global economic recovery, despite growing concerns over U.S.-China tensions and mass protests across America over the death of a black man in police custody.
The U.S. dollar index against a basket of six major currencies hovered near its weakest level since mid-March, standing at 97.885.
It has fallen about 5% from a peak hit in March when panic over the Covid-19 pandemic gripped the world’s financial markets, prompting investors to scramble for the safety of dollar cash.
The euro fetched $1.1126, little changed so far on Tuesday but holding near a 2-1/2-month high of $1.1154 touched on Monday.
The common currency gained traction after the European Union’s executive last month unveiled a 750 billion euro plan to prop up economies hammered by the coronavirus pandemic.
Sterling hit a one-month high of $1.2525 before stepping back to trade flat $1.2479.
U.S. manufacturing activity inched up from an 11-year low in May, an index showed, and although the reading was weaker than forecast, it aligned with market expectations that the worst of the economic downturn has passed.
Against the safe-haven yen, the dollar was at 107.68 yen, stuck in a well-worn range between 106 and 108 over the last several weeks.
Market risk sentiment was hurt only slightly on Monday when Bloomberg reported China had told state-owned firms to halt purchases of soybeans and pork from the United States, raising concerns that the trade deal between the world’s two biggest economies could be in jeopardy.
Investors’ economic optimism has so far also survived the rising social unrest in the United States where President Donald Trump vowed to deploy thousands of heavily armed soldiers and law enforcement to halt violence in the
U.S. capital and other cities if mayors and governors failed to regain control of the streets.
The Chinese yuan gained slightly to 7.1200 per dollar, pulling further away from an eight-month low of 7.1765 touched last week.
The yuan hit an 11-year low of 7.1854 per dollar in September when diplomatic tensions intensified over Trump’s fourth round tariffs on Chinese products.
· Treasury yields flat as markets monitor economic reopening and civil unrest
U.S. government debt prices were little changed on Tuesday morning as investors assessed the reopening of economies against a backdrop of mass civil unrest.
At around 2:10 a.m. ET, the yield on the benchmark 10-year Treasury note was marginally lower at 0.6607% and the yield on the 30-year bond hovered just below the flatline at 1.4539%. Yields move inversely to prices.
Police used tear gas and rubber bullets on protesters outside the White House on Monday to clear a path for President Donald Trump to walk through Lafayette Square and pose for a picture outside St. John’s Church.
Meanwhile in a hastily-assembled Rose Garden address, Trump threatened to use military force to quash nationwide demonstrations sparked by the police killing of George Floyd, an unarmed black man, in Minneapolis last week. He did not address the issues of police brutality or racial inequality underlying the protests.
The unrest comes as states attempt to gradually reopen their economies following months of lockdowns due to the coronavirus pandemic, which has now infected more than 1.8 million Americans and killed more than 105,000, according to Johns Hopkins University.
Markets had taken heart from the prospects of reopening, but concerns about the duration and possible escalation of the protests following Trump’s remarks, along with rising tensions between the U.S. and China over its increased control in Hong Kong, will likely weigh on risk sentiment.
There are no major economic data releases scheduled for Tuesday.
· Goldman Sachs bets against the dollar as economies reopen
Goldman Sachs has begun to establish short positions on the dollar as the reopening of economies is expected to lure investors out of the traditional safe-haven currency.
In a note over the weekend, Goldman strategists said that while they had maintained that it was too early to look for “outright and sustained Dollar downside given the balance of cyclical risks,” shorts on the dollar now looked attractive in certain currency crosses.
Goldman cited the “steady reopening process, limited evidence of a pickup in Covid infection rates, and encouraging policy actions like progress on the EU Recovery Fund,” a 750 billion euro ($834.1 billion) borrowing program designed to help shore up the European economy in light of the coronavirus pandemic.
· USD/JPY inching higher towards 108.00 amid USD rebound
USD/JPY is on a steady rise towards 108.00 amid a broad rebound staged by the US dollar, as the market mood turns cautious amid looming US-China trade risks and escalating civil unrest in the US cities.
Technical indicators in the meantime, head nowhere around their midlines, failing to provide directional clues. Bears could have some chances on a break below 106.90, while bulls can become more courageous if the pair surpasses 108.10.
Support levels: 107.30 106.90 106.65
Resistance levels: 108.10 108.45 108.80
· China may be using weak soybean demand and adequate supply as an opportunity to halt U.S. imports
News that Beijing has ordered state firms to halt purchases of farm products could well be an opportunistic political maneuver stemming from fundamental weakness on the demand side in China, said analysts.
On Monday, Reuters reported that China has asked main state firms to suspend large-scale purchases of major U.S. farm products like soybeans and pork. That came in response to President Donald Trump, who said last week he would strip Hong Kong of its special status with the U.S.
But soybean demand has not been strong in China anyway.
In April, China’s imports of U.S. goods slumped 11.1% in dollar terms from a year ago.
· Protests continue as Trump vows to bring in military
Hours after Trump's remarks in the Rose Garden and tear gas fired at peaceful protests in Washington D.C., protesters took to the streets despite curfews across the United States. Demonstrators set fire to a strip mall in Los Angeles and looted stores in New York City
· George Floyd's brother calls for end to violence as he visits scene of fatal arrest
George Floyd's brother has pleaded for peace at the site where his brother died, saying destruction is "not going to bring my brother back at all".
"Let's switch it up. Do this peacefully, please," Mr Floyd said.
The gathering was part rally and part impromptu eulogy as Mr Floyd urged people to stop the violence and use their power at the ballot box.
· Moody’s cuts India’s rating to lowest investment grade with negative outlook
Moody’s Investors Service downgraded India’s credit rating to a notch above junk on Monday, citing a prolonged period of slow growth in Asia’s third-largest economy, rising debt and persistent stress in parts of the financial system.
It said the cut to Baa3 from Baa2 was not driven directly by the impact of the coronavirus but that the pandemic had amplified vulnerabilities in India’s credit profile that were present and building prior to the shock.
Moody’s maintained a negative outlook for the new sovereign rating, citing worsening government finances as the coronavirus continues to hurt the economy.
· Oil prices rise ahead of OPEC+ meeting on extended output cuts
Oil prices rose on Tuesday, with traders waiting to see whether major producers agree to extend their huge output cuts to shore up prices at a virtual meeting expected later this week.
Brent crude LCOc1 futures rose 0.94%, or 36 cents, to $38.68 a barrel as of 0630 GMT.
West Texas Intermediate (WTI) crude CLc1 futures rose 0.73%, or 26 cents, to $35.70 a barrel.
Brent has doubled over the past six weeks, thanks to supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and allies, including Russia, a grouping dubbed OPEC+.
Both Brent and WTI prices, however, are still down about 40% for the year so far.
· China approves $20 billion mega petchem complex in Shandong oil hub: sources
China’s state planner has given initial approval for a $20 billion refinery and petrochemical project to be built in Shandong province, the country’s hub for independent oil refineries, said two persons with knowledge of the matter.
China’s National Development & Reform Commission (NDRC) gave a green light on Monday for the Shandong provincial government to start planning a 400,000 barrel-per-day (bpd) refinery and 3 million tonne-per-year ethylene plant in Yantai, said the two China-based industry sources.
The project in the eastern Chinese province was first proposed several years ago, but it wasn’t activated because of China’s struggles with excess refining capacity. It was revived after Beijing dialed up infrastructure spending this year to bolster an economy reeling from the corona virus pandemic.
Reference: CNBC, Reuters
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