· The Japanese yen fell to a six-month low on Monday and the Australian and New Zealand dollars rallied after an unexpected rebound in Chinese manufacturing activity raised hopes of a brighter outlook for the world economy.
The euro was steady ahead of a testimony to the European parliament later in the day by the European Central Bank’s new president, Christine Lagarde. A tightening British election race knocked the pound lower.
The safe-haven yen fell to 109.73 per dollar, its lowest since May and was last down a fifth of a percent at 109.63.
The euro was steady at $1.1017 before Lagarde’s testimony to the European parliament later in the day.
Lagarde took over the helm of the ECB last month and investors want a sense of the direction central bank policy will take under its new president.
Elsewhere, sterling was down a fifth of a percentage point at $1.2919 as polls pointed to a narrowing lead for the governing Conservative Party before the UK’s Dec. 12 election.
· The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 97.887 after declining from highs above 98.3 seen earlier.
The dollar dropped to two-week lows on Monday after data showed the U.S. manufacturing sector shrank for a fourth straight month in November and construction spending fell unexpectedly, stoking fears the world’s largest economy could slip into recession.
Before the U.S. data’s release, the dollar had already weakened earlier, after U.S. President Donald Trump on Monday announced he would restore tariffs on U.S. steel and aluminum imports from Brazil and Argentina in apparent retaliation for currency weakness he said was hurting U.S. farmers.
· Positive data from European manufacturing early Monday fueled optimism on the region’s outlook. Manufacturing figures from the UK, Germany, Spain and France all beat expectations.
In contrast, the U.S. Institute for Supply Management’s (ISM) index of national factory activity fell to 48.1 in November from 48.3 in October, down for a fourth month. The reading was below expectations of 49.2 from a Reuters poll of 57 economists.
A separate report showed U.S. construction spending in October dropped as well, falling 0.8% as investment in private projects tumbled to the lowest level in three years.
· Trump, citing U.S. farmers, slaps metal tariffs on Brazil, Argentina
U.S. President Donald Trump ambushed Brazil and Argentina on Monday, announcing tariffs on U.S. steel and aluminum imports from the two countries in a measure that shocked South American officials and left them scrambling for answers.
In an early morning tweet, Trump said the tariffs, “effective immediately,” were necessary because “Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers.”
In fact, the opposite is true: Both countries have actively been trying to strengthen their respective currencies against the dollar. Analysts said the origin of Trump’s decision may lie in the domestic political consequences of his China trade war.
U.S. farmers represent a key demographic for Trump ahead of the November 2020 election, and they have watched in vain as the trade dispute has hurt the competitiveness of U.S. agricultural products, allowing their Brazilian and Argentine peers to get rich off China.
“For many Brazilians, this smells like revenge for their country’s soybean farmers bonanza – they have benefited enormously from the U.S.-China trade war by replacing U.S. soybeans sales into China,” said Kim Catechis, head of investment strategy at Martin Currie.
· U.S. vows 100% tariffs on $2.4 billion of French products over digital services tax
The U.S. government on Monday said it could slap additional duties of up to 100% on $2.4 billion in French imports of Champagne, handbags, cheese and other products, after concluding that a new French digital services tax would harm U.S. tech companies.
· Markets are counting down to the Dec. 15 trade deadline and could be choppy until then
Stocks could have a hard time charging ahead until the Trump administration clarifies whether it will impose new tariffs on China on Dec. 15.
The market has had a countdown clock set to that date, but now it is even more in focus as progress appears to have slowed in talks with China. In addition, President Donald Trump on Monday said he would put tariffs on steel and aluminum exports from Brazil and Argentina, claiming the two countries have been devaluing their currencies.
Commerce Secretary Wilbur Ross said in an interview Monday that the U.S. would go ahead on tariffs on another wave of Chinese goods if there was not deal with China by Dec. 15.
“I do think much of December’s action is going to hinge on the trade decision and the headlines and certainly the 15th is the date that is going to overhang the market until there’s some sort of definitive news,” said Arone. “To me, the bigger picture here is share prices reflect that next year will be better for manufacturing, better for global profits ... on the back of a better trade environment. News today that you’re tariffing Argentina and Brazil means to me that investors built in too much optimism that trade won’t be an issue in 2020.”
Analysts said they expect some sort of trade deal that halts the next round of tariffs on Chinese goods by Dec. 15, the date the tariffs are expected to take effect. But it’s not clear whether the U.S. will agree to roll back any existing tariffs as requested by China. Also unclear is how much China will do on intellectual property.
“This is the kind of thing none of us can predict,” said Ed Keon, chief investment strategist at QMA. “It’s really complete speculation. It’s hard to invest money based on something that may have an affect on the market. ... When we think about this whole year, many times we talked about trade or tariffs and we’re still up 25%.”
But now that the talks are coming down to the wire, the market gains could be more constrained. “My guess is it will be hard to get a big run up until the deadline passes,” said Keon. “I still think we’ll be higher in December when all is said and done.”
Keon said he expects manufacturing to bottom soon, and noted the positive news from China was encouraging. But a trade deal is still needed.
· Oil futures gained more than 1% on Monday on hints the Organization of the Petroleum Exporting Countries (OPEC) and its allies may agree to deepen output cuts at a meeting this week and as rising manufacturing activity in China suggested stronger demand.
Brent futures for the most active contract for February delivery gained 0.7%, or 43 cents, to settle at $60.92 a barrel. U.S. West Texas Intermediate (WTI) crude rose 1.4% to settle at $55.96 a barrel.
Oil eased off session highs as Wall Street dropped after data showed U.S. factory activity contracted in November and after U.S. President Donald Trump unexpectedly announced plans to reimpose tariffs on steel and aluminium from Argentina and Brazil.
Reference: CNBC, Reuters
Thai
Eng