· The dollar slipped on Friday against a basket of currencies, holding above a one-week low as a mixed report on the U.S. jobs market in August reinforced the view of a slowing expansion and the possibility of more interest rate cuts from the Federal Reserve.
Traders now await clues on the Fed’s next move after it embarked on its first rate cut since 2008 in July when Fed Chair Jerome Powell participates on a panel about the economy and monetary policy in Zurich, which begins at 12:30 p.m.
Interest rate futures still implied traders positioned for a quarter-point rate decrease at the Fed’s Sept. 17-18 policy meeting, according to CME Group’s FedWatch program.
An index that tracks the greenback against the euro, yen, sterling and three other currencies was 0.19% lower at 98.223 after hitting a one-week low of 98.085 on Thursday. The dollar index is on track for 0.67% decline, its steepest weekly loss since June.
The greenback lost ground against its rivals as global tensions receded this week, most notably with China and the United States agreeing to high-level trade talks in October.
Safe-haven bids for the dollar abated in response to political opposition to a “no-deal” Brexit and Hong Kong leader Carrie Lam’s withdrawal of an expedition bill that triggered months of violent protests.
The Aussie dollar, whose fortunes are tied to the Chinese economy, was bolstered earlier by the People’s Bank of China’s move to cut banks’ reserve requirements for the first time this year. The Chinese currency in the offshore market extended gains and was trading up 0.37% against the greenback at 7.1118 yuan.
· China’s People’s Bank of China (PBOC) announced Friday that it was reducing the amount of funds that banks have to hold in reserve in an effort to further stimulate its economy.
The PBOC said its reserve requirement ratio would be cut by 50 basis points and it would further reduce that ratio by 100 basis points for some qualified banks. The move is effective from September 16 with the additional targeted cut taking place on October 15 and November 15.
It added that it would mean 900 billion yuan ($126.35 billion) of liquidity being released into the world’s second-largest economy. The move was the third action of its kind this year and the seventh since early 2008, according to Reuters.
· The euro was on the back foot on Monday ahead of a European Central Bank meeting later this week at which policymakers are expected to deliver new stimulus to bolster a flagging regional economy.
Heightened expectations for an ECB easing come as other global central banks move to loosen the monetary spigot with the People’s Bank of China on Friday taking steps to boost lending
The euro was little changed at $1.10235 early in Asian trading after falling 0.1% on Friday.
· U.S. government debt yields erased an early rise on Friday after the Labor Department said employers added fewer jobs than expected in August, though wage gains kept rates from falling further.
The yield on the benchmark 10-year Treasury note ticked lower to 1.55% following its 10-basis-point climb in the prior session. The yield on the 30-year Treasury bond slipped to 2.02% and the 2-year yield hovered at 1.53% after posting its largest one-day jump since February 2015 in the prior session. Yields rise as prices fall.
· U.S. employers added a weaker-than-anticipated 130,000 jobs in August, the government said in its regular update situation. Economists polled by Dow Jones expected the labor market to add 150,000 jobs following a gain of 164,000 in July. The unemployment rate held steady at 3.7%.
Average hourly earnings — a statistic often used by economists as a leading inflation indicator — rose more than expected between August and July, as a 0.4% gain topped expectations of a 0.3% increase. The print brings wages gains up to 3.2% over the year.
· Federal Reserve Chairman Jerome Powell said Friday that the trade war between China and the U.S. is weighing down companies’ investment decisions.
“I think it is the case that uncertainty around trade policy is causing some companies to hold back now on investment,” Powell said in Switzerland. “We’ve been hearing quite a bit about uncertainty. So for businesses, to particularly make longer-term investments in plants or equipment or software, they want some certainty that the demand will be there.”
Federal Reserve Chairman Jerome Powell said Friday the central bank’s pivot this year to lower interest rates has helped sustain U.S. economic growth.
Speaking during a forum in Zurich, the central bank leader gave mostly positive reviews to where the U.S. stands now, even while much of the rest of the world weakens.
“The Fed has through the course of the year seen fit to lower the expected path of interest rates,” he said. “That has supported the economy. That is one of the reasons why the outlook is still a favorable one.”
“We’re not forecasting or expecting a recession,” he said. “The most likely outlook is still moderate growth, a strong labor market and inflation continuing to move back up.”
Powell pledged that the Fed will “continue to act as appropriate to sustain this expansion,” verbiage he has used before that the market has taken as assurance that the Fed is likely to keep rates low.
· White House economic adviser Larry Kudlow said on Friday the United States wants “near term” results from U.S.-China trade talks in September and October but cautioned that the trade conflict could take years to resolve.
Speaking to reporters outside the White House, Kudlow said that although the United States and China have been negotiating on trade and intellectual property issues for 18 months, that was a short period of time in terms of what was at stake and negotiations could go on much longer.
“A deal of this size and scope and central global importance, I don’t think 18 months is a very long time,” Kudlow said.
“The stakes are so high, we have to get it right, and if that takes a decade, so be it,” Kudlow added, drawing parallels to U.S. Cold War competition against the Soviet Union.
· China’s exports unexpectedly fell in August as shipments to the United States slowed sharply, pointing to further weakness in the world’s second-largest economy and underlining a pressing need for more stimulus as the Sino-U.S. trade war escalates.
Beijing is widely expected to announce more support measures in coming weeks to avert the risk of a sharper economic slowdown as the United States ratchets up trade pressure, including the first cuts in some key lending rates in four years.
On Friday, the central bank cut banks’ reserve requirements for a seventh time since early 2018 to free up more funds for lending, days after a cabinet meeting signalled that more policy loosening may be imminent.
August exports fell 1% from a year earlier, the biggest fall since June, when it fell 1.3%, customs data showed on Sunday. Analysts had expected a 2.0% rise in a Reuters poll after July’s 3.3% gain.
· The U.K.’s Brexit secretary on Sunday insisted that ministers would follow ministerial code, in response to the question of whether Prime Minister Boris Johnson will break the law and defy parliament by pursuing a no-deal Brexit.
Asked if the Johnson would defy the law, Stephen Barclay, Secretary of State for Exiting the European Union, refrained from offering a definitive answer, telling CNBC: “Well the ministerial code requires obeying the law … but the key issue is how do we deliver on the democratic results of the British people. This was the biggest vote in our country’s history, people want to see this done.”
Parliament is expected to pass legislation Monday that would require the prime minister to seek an extension to Article 50, the mechanism triggering departure from the EU, to avoid crashing out of the bloc without a deal. A former top prosecutor on Saturday warned that were he to go against the law, Johnson would be in contempt of court and would face the same punishment as any ordinary citizen.
· Iran’s Revolutionary Guard Corps and its external Quds Force are still moving oil worth hundreds of millions of dollars through sprawling illicit shipping networks, despite a maximum pressure sanctions regime from Washington and scores of corporate and government entities blacklisted.
Washington is working to crack down on this, the U.S. Treasury Department says, and it’s warning those in the maritime industry to be wary of involvement with regimes or entities that have been deemed terror sponsors by the U.S. — or face steep costs.
· Thousands of protesters earlier sang the Star Spangled Banner and called on U.S. President Donald Trump to “liberate” the city. They waved the Stars and Stripes and placards demanding democracy.
U.S. Defense Secretary Mark Esper on Saturday urged China to exercise restraint in Hong Kong, which returned to Chinese rule in 1997.
Hong Kong is an inseparable part of China and any form of secessionism “will be crushed”, state media said on Monday, a day after demonstrators rallied at the U.S. consulate to ask for help in bringing democracy to city.
The China Daily newspaper said Sunday’s rally in Hong Kong was proof that foreign forces were behind the protests, which began in mid-June, and warned that demonstrators should “stop trying the patience of the central government”.
· Oil prices rose on Friday as the head of the U.S. Federal Reserve said it would “act as appropriate” to sustain an economic expansion that has been pressured by uncertainty over global trade.
Global benchmark Brent crude was up 52 cents, or 0.9%, at $61.47 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 22 cents, or 0.4%, to settle at at $56.52.
Both benchmarks had declined earlier on concerns over slipping U.S. job growth and continued U.S.-China trade tensions, despite recent diplomatic progress.
Reference: CNBC, Reuters
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