· The yen traded close to a seven-month high against the dollar on Tuesday, as unrest in Hong Kong and gyrations in Argentina’s markets heightened investor risk aversion and fanned demand for the safe-haven Japanese currency.
The yen was at 105.495 per dollar after brushing 105.050 overnight, its strongest since Jan. 3.
· “It’s the ‘risk off’ in the market generated by events in Hong Kong and Argentina that is feeding demand for the yen,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities. “Speculators are increasing their long positions on the yen.”
“There really are no signs of the yen’s advance abating,” Ishizuki added. “The next target is the yen’s high reached against the dollar early in January, but even that threshold won’t present much of an obstacle at this rate.”
· U.S. Treasury yields have declined steadily on the back of global economic concerns and the prospect of the Fed cutting rates in the months ahead. The spread between U.S. and Japanese benchmark 10-year yields has shrunk to its narrowest since November 2016 this month as a result.
· The euro dipped 0.25% to $1.1188, handing back the previous day’s modest gains.
The single currency had edged higher on Monday after Italian bond yields pulled back from five-week highs on relief that rating agency Fitch left the country’s credit rating unchanged.
· EUR/USD trades around 1.1200 amid ongoing Italian crisis, risk-off
image (3).png
EUR/USD is trading around 1.1200, at familiar levels. The Italian Senate has postponed the no-confidence vote and political uncertainty weighs. The US dollar is gaining ground on a risk-averse mood.
EUR/USD is lacking a clear directional bias for the fifth straight day. The pair charted a Doji candle – a sign of indecision – last Tuesday and has remained trapped largely in a narrow range of 1.1250-1.1167 ever since.
image (4).png
· GBP/USD is trading around 1.2050, lower. The US dollar is marginally stronger amid global concerns and the pound awaits the all-important jobs report which is expected to show faster wage growth.
While 1.2015, 1.2000 and 2017 low near 1.1987 can keep entertaining sellers amid frequent bounces due to oversold conditions of 14-day relative strength index (RSI), a 12-day long trend-line resistance at 1.2083 becomes immediately important as it holds the key to pair’s run-up towards monthly high near 1.2210.
· China’s central bank is nearly ready to issue its own sovereign digital currency, according to a senior official.
Mu Changchun, deputy director of the People’s Bank of China’s payments department, said the institution’s virtual currency was “almost ready” for release, according to Reuters. Mu’s comments were also reported by Bloomberg.
Researchers at the bank have been working on the currency for five years. The PBOC hasn’t been alone in exploring the possibility of issuing digital currency as an alternative to cash; Sweden’s Riksbank is another central bank looking into the idea.
· Hong Kong leader Carrie Lam said on Tuesday that “lawbreaking activities in the name of freedom” were damaging the rule of law and that the Asian financial hub’s recovery from anti-government protests could take a long time.
Her comments come after China said the anti-government protests that have swept the city over the past two months had begun to show “sprouts of terrorism”.
· US Consumer Price Index is in the limelight today, and expectations stand at a repeat of the 2.1% Core CPI read. The Fed cut interest rates due to trade tensions and low inflation, and any deviation may impact the dollar and broader markets.
· The next rate decision of the Federal Reserve depends heavily on price development that excludes volatile items such as energy and food – Core CPI – which has risen by 2.1% in June. The economic calendar is pointing to a repeat of the same level in July.
Trading the dollar on the news is rather straightforward. An acceleration to 2.2% or higher would boost the greenback while a miss of 2% or lower may send it lower.
The FXStreet Surprise Index shows a higher likelihood of a downside surprise than an upside surprise. While such a disappointment may be minor – perhaps Core CPI will rise by only 2% against 2.1% YoY – the dollar's sensitivity to any deviation in inflation may send it down.
· Global investors should be more concerned about the fallout from anti-government protests in Hong Kong than the U.S.-China trade war, CNBC’s Jim Cramer said Monday, hours after the city’s main airport canceled all flights do to demonstrations.
“I just don’t think the Chinese communists can avoid it anymore,” Cramer said. “The Chinese government is more worried about Hong Kong than they’re worried about trade. Because Hong Kong is something that’s very visible in Europe.”
Cramer said he expects the Chinese government to bring in the People’s Liberation Army to quell the crowds, which would have global implications.
“If there’s a ‘Tiananmen Square’ in Hong Kong, we know this market has to get hit,” he said, talking about what could a worst case scenario. In 1989, Chinese troops stormed Tiananmen Square to break up a mass pro-democracy demonstration, killing what’s believed to be at least 10,000 people.
· Wall Street economists see the Federal Reserve continuing to cut interest rates after July’s first move lower in 11 years.
Recession fears are rising, specifically because of increasing trade tensions between the U.S. and China.
UBS sees another cut in December then one final reduction in March 2020 for a full cycle of 100 basis points lower, taking the Fed’s benchmark funds rate down to a range of 1% to 1.25%. That jibes with current pricing in the futures market which sees the funds rate around 1.12% by the end of next year.
Morgan Stanley anticipates successive cuts at the September and October FOMC meetings and an even steeper path ahead, with four more rate moves in 2020 taking the funds rate close to zero, or where it was during the financial crisis and stayed for seven years. Strategist Mark Cabana of BofAML also recently told CNBC that zero rates could come if trade tensions keeping rising.
· China’s top technology, e-commerce and consumer electronic firms are set to report a sharp slowdown in revenue growth for the June quarter, as a bruising trade war with the United States weighed on the Chinese economy and hurt consumer spending.
Revenues at a handful of China’s biggest tech firms are expected to grow 26% on average in the quarter ended June 30 - the slowest in six quarters - compared with the same period a year earlier, according to consensus estimates from Refinitiv. This includes China’s e-commerce giant Alibaba Corp and its smaller rival JD.com, internet firm Baidu Inc, and Tencent Holdings, the world’s largest gaming company.
· Danske Bank analysts point out that in the UK, the labour market report for June is due out and will be a key economic release for the day.
“The growth rates in wages and employment have been fairly high despite rather weak economic momentum. The question is whether this can continue or the labour market will start to show signs of moderation.”
“In the euro area, the main focus is on the German Zew. We expect the Zew to decline further and hence continue to point to a gloomy outlook in the uncertain global environment and the escalation of trade war.”
“In the US, CPI core is being released. We expect it rose +0.2% m/m in July, which translates into an unchanged annual inflation rate at 2.1% y/y.”
“Overnight in China we get a batch of releases including industrial production, retail sales and fixed asset investments. In line with consensus, we expect the data still to paint a soft picture of the Chinese economy, but not a hard landing. Retail sales growth moved sharply higher but we expect it to have fallen back to around 8-8½% in July.”
· Oil prices fell on Tuesday, offsetting narrow gains in the previous session, as sluggish demand forecasts countered expectations that major producers would prop up oil prices by limiting crude oil output.
International benchmark Brent crude futures LCOc1 were down 48 cents or 0.8%, from the previous settlement, at $58.09 a barrel by 0643 GMT.
U.S. West Texas Intermediate (WTI) CLc1 futures were at $54.52 per barrel, down by 41 cents, or 0.8%, from the last close.
“Although the outlook remains bleak, oil prices have remained anchored this week after a rapid response from Saudi Arabia, who is serious about stepping in to defend the oil price,” Stephen Innes, managing partner at VM Markets Pte Ltd said in a note.
Reference: CNBC, Reuters, FX Street
Thai
Eng