• The dollar traded higher against a basket of currencies on Monday amid fears of a potentially major escalation in the China-U.S. trade conflict, while Sweden's crown rose following the previous day's election.
U.S. President Donald Trump warned on Friday that he was ready to slap tariffs on virtually all Chinese imports into the United States, threatening duties on another $267 billion of goods in addition to the $200 billion already facing the risk of duties.
The dollar index (DXY), which measures the greenback against a basket of six currencies, traded about 0.1 percent higher at 95.472, not far off a three-week high of 95.737 hit on Tuesday last week.
The euro (EUR=) was 0.1 percent lower at $1.1544 after falling more than half a percent during the previous session in the wake of the U.S. job data.
The Swedish crown strengthened after an election in the country on Sunday that saw support for the nationalist Sweden Democrats surge.
The Swedish crown rose about 0.6 percent against the euro (EURSEK=) to 10.43 crowns.
• "If there are any signs that the U.S. economy is finally hit by its own protectionist moves, then I think that's the start of full-blown risk aversion," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
"This will at least lead to the weakness of the dollar against the yen," Yamamoto said. He warned markets didn't yet fully price in the impact of U.S. tariffs on virtually all imports from China.
• Washington is going to lose the ability to get anything done if the Democrats seize control of the House during the midterms, and the situation on trade will only get worse, not better, according to businessman and trade expert Steven Okun.
Okun added that the trade war with China would probably get worse as well.
He explained that Washington is "going to have the inability to get anything done," given that the entire administration will be affected if the Democrats take over.
The U.S midterm elections are set to take place on November 6.
"The president still has some authority under trade, he's going to be able to put on the auto parts tariffs if he wants, he's going to be able to hit China with $200 billion and another $200 billion on top of that. So I see things getting worse for trade, not better, after the midterm elections," he said.
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· China’s chances of escaping the trade conflict with the U.S. with only minor damage to its economy just got slimmer.
On Friday, U.S. President Donald Trump doubled down on his threats to impose higher tariffs on the nation’s goods, saying he’s ready to tax all imports "at short notice." While economists see the immediate impact of trade tension as limited, the effect on economic confidence may be larger, warned former People’s Bank of China Governor Zhou Xiaochuan.
“With further large-scale U.S. tariff measures imminent, Chinese exporters will be hit hard and China’s GDP growth rate in 2019 is likely to be dented,” said Rajiv Biswas, Asia Pacific chief economist at IHS Markit in Singapore. “If the U.S. keeps ramping up its tariff measures against China, the export sector will face a long, hard road ahead despite government measures to mitigate the impact.”
· A new offensive in the U.S.-China trade war appeared to loom on the horizon on Friday.
U.S. President Donald Trump's administration was thought to be ready to place tariffs on an additional $200 billion worth of Chinese goods after the public comment period on those measures ended at 12:00 a.m. ET on Friday. Beijing has indicated any such move would be quickly followed by its own retaliation.
"I think we could see two more years of serious tension in the U.S.-China trade relationship," said Derek Scissors, Asia economist at the American Enterprise Institute, a conservative public policy think-tank based in Washington.
"What the U.S. wants is ... very serious changes in Chinese trade behavior and maybe domestic economic behavior," he added.
· China's leadership is prepared to let the country's currency weaken to support its exporters as global trade tensions deepen, experts told CNBC.
But, they said, Beijing will prevent any disorderly depreciation in the dollar/yuan exchange rate beyond 7, a politically sensitive level upon which Washington may seize to label China a currency manipulator.
On Thursday afternoon, the yuan was at about the 6.84 level to the dollar.
Beijing's currency policy stands at a crossroads this month. The outlook for the yuan ultimately hinges on whether the U.S. administration makes good on its threats to slap tariffs on an additional $200 billion worth of Chinese imports.
· China’s producer inflation cooled in August amid softening domestic demand, pointing to a steady slowing in growth in the world’s second biggest economy as it confronts heightened risks to the outlook from a heated trade dispute with the United States.
The producer price index (PPI), a gauge of industrial profitability, rose 4.1 percent in August from a year earlier, compared with a 4.6 percent increase in July, according to data released by the National Statistics Bureau on Monday.
· Italy's coalition government is poised to present its 2019 budget next month, setting out its economic and financial plans for the coming year.
"The problem with Italy is that I don't think it can even stand a minor recession," Italy's former prime minister designate, Carlo Cottarelli, told CNBC's Steve Sedgwick at the Ambrosetti Forum in Italy on Saturday.
· Japanese Prime Minister Shinzo Abe said on Monday that he would proceed with a planned sales tax hike in October 2019 and carry out fiscal reform, while taking steps to cushion the economic impact of the higher levy.
He said he has learned a lesson from the impact of the 2014 sales tax hike, which dealt a blow to private consumption, citing the need to stimulate consumption of durable goods such as cars and housing.
· When Boston Federal Reserve Bank President Eric Rosengren switched from advocating low interest rates to tighter monetary policy, he argued it was time to start crawling back toward “normal” rates even with 5 percent unemployment and weak growth and inflation.
Rosengren has joined colleagues in beginning to lay the groundwork for those rate hikes to potentially continue longer and to a higher level than currently expected as the outlook for the economy strengthens.
“This is not hair on fire. There is upward pressure on inflation, and given that we are already at 2 percent, labor markets are already tight ... that is going to be a situation where we start persistently having inflation above what our target is,” Rosengren said. “There is an argument to normalize policy and probably be mildly restrictive.”
· China will respond if the United States takes any new steps on trade, the foreign ministry said on Monday, after President Donald Trump warned he was ready to slap tariffs on virtually all Chinese imports into the United States.
· Worries about the U.S.-China trade war are overdone because the impact on China will not be as immediate and challenging as many investors expect, according to the chief executive of a widely followed investment group.
"It takes a long time to move trade flows. China has industries that are going to be there for a long time, they're not easily movable," said Jonathan Slone, CEO of brokerage and investment group CLSA.
· Oil prices rose on Monday as U.S. drilling for new production stalled and as the market eyed tighter conditions once Washington’s sanctions against Iran’s crude exports kick in from November.
U.S. West Texas Intermediate (WTI) crude futures were at $68.23 per barrel at 0640 GMT, up 48 cents, or 0.7 percent, from their last settlement.
Brent crude futures climbed 64 cents, or 0.8 percent, to $77.46 a barrel.
· The WTI Crude Oil market had a very rough session on Friday but ended up collecting a lot of its losses and turning things around quite nicely. By forming a hammer on Friday, it looks as if the market is ready to continue to try to grind to the upside. I do break at the top of that candlestick, I’d be a buyer and look to fill the gap just below the $70 level. I do think there is a proclivity to go higher, but obviously there are a lot of moving pieces out there with the global marketplace being what it is and of course all of the rhetoric surrounding the trade war. In general, I am bullish of oil, so if we do break down below the bottom of the hammer, then I think we probably “reset” closer to the $65 level.
Reference: Reuters,CNBC,Bloomberg, DailyForex
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