· The yen and Swiss franc held gains against the dollar on Wednesday as appetite for safe-havens spiked after U.S. President Donald Trump warned a trade deal with China might not be in place until after the 2020 U.S. presidential election.
That sent the Chinese yuan to a 5-1/2-week low against dollar as investors feared the United States could carry out its plan to raise tariffs even further on Chinese goods on Dec. 15.
The U.S. currency, however, was broadly sold against its major rivals, which helped sterling climb to its highest level in more that six months on the greenback.
The offshore yuan, fell to 7.0738 per dollar, close to its weakest level since Oct. 18. The onshore yuan opened on Wednesday at its softest since Oct. 25, and was last quoted down 0.1% at 7.0692.
· EUR/USD retreats from 1.11 amid the risk-off mood
EUR/USD is trading below 1.11 as hopes for an imminent Sino-American trade deal fade. The US economic calendar is packed with top-tier events.
The world's most-popular currency has nearly hit 1.11 – a peak from late November – thus creating a double-top. This round level is looming above. EUR/USD seems well-positioned to break higher. It has surpassed the 200 Simple Moving Average, and the Relative Strength Index has dropped below 70 – thus exiting overbought conditions.
Bulls are leading over the bears.
Above 1.11, the next level to watch is 1.1130, which has provided support early in November. It is followed by 1.1180 – another double-top, holding the currency pair down in October and November.
Looking down, support awaits at 1.1050, which held EUR/USD up in late November. Next, 1.1035 capped it before the recent surge. November's low at 1.0980 is another significant level.
· “Expectations for a U.S.-China trade deal are fading, and dollar/yen has broken its support levels, so the bias is tilted to the downside,” said Takuya Kanda, general manager of research at Gaitame.com Research Institute in Tokyo.
“More tariffs would push dollar/yen lower still.”
The yen stood at 108.60 versus the dollar on Wednesday, close to its strongest since Nov. 22.
The dollar index against a basket of six major currencies was quoted at 97.768, having skidded to a one-month low.
Sterling benefited from the dollar’s woes and traded at $1.2993, close to the highest since mid-May.
· Automatic Data Processing (ADP) the largest private payroll processing firm in the United States will issue its National Employment Report on Wednesday December 4th at 13:15 GMT, 8:15 EDT
Forecast
Employment at ADP’s clients is projected to rise 140,000 in November following gains of 125,000 in October and 93,000 in September.
The correlation between the two statistics remains high, notwithstanding odd single month divergences.
· US-China trade war is ‘unresolvable,’ strategist says
Investors look set to make money when Washington and Beijing sign their “phase one” trade deal — but in the long term, the Sino-U.S. trade war is “unresolvable,” according to one analyst.
Speaking to CNBC’s “Squawk Box Europe” on Tuesday, Patrick Armstrong, CIO of Plurimi Investment Managers, said holding any asset ahead of the agreement being finalized would definitely pay off.
Despite months of anticipation from markets, however, Armstrong speculated the preliminary deal would be a “sell the news type event” with little economic impact.
“I think any trade deal we get between the U.S. and China is going to be very shallow,” he explained. “It’s not the all-encompassing deal we were hoping for.”
He noted that investors had been expecting the “two biggest macro uncertainties” — Brexit and U.S.-China trade relations — to be resolved in early 2019, and markets were now entering 2020 still awaiting solutions.
But according to Armstrong, there is no end in sight for the Sino-U.S. trade war.
“I think U.S.-China is unresolvable,” he told CNBC. “I think what Trump did yesterday is a real warning that once he gets a deal with China — he’s combative, he wants to have an opponent — he’s going to change his attention from China to South America to Europe, and I don’t think we’re going to have a trade deal that just leads to a resumption of global trade.”
· On Tuesday, speaking before reporters at a London press conference, President Donald Trump signaled not to expect the trade war with China to end anytime soon. “We’re doing very well with China right now and we could be doing even better,” he boasted, adding that when it comes to reaching a deal with China and unwinding tariffs, “I have no deadline. … In some ways I think it’s better to wait for after the election if you want to know the truth.”
Trump’s timeline announcement comes as a new round of tariffs is scheduled to go into effect on Dec. 15. Those tariffs target $250 billion in Chinese goods, including video game consoles, computer monitors, and cellphones, as well as some clothing, shoes, and toys. To date, $350 billion in Chinese goods have been targeted by tariffs. Reuters has said once the new tariffs kick in, the regime will cover “nearly all goods traded by the U.S. and China.”
The tariffs are putting considerable pressure on the U.S. economy. J.P. Morgan Chase estimated in August that the tariffs would cost American households $1,000 each this year, a figure that doesn’t take it to account some of the recent increases. Farm bankruptcies are up 24 percent year over year, as U.S. farmers struggle under China’s retaliatory tariffs on soybeans, pork, and other products, despite Trump’s attempts to soften the blow with a $15 billion aid package.
· U.S. President Donald Trump’s comments that a trade deal with China might have to wait until late 2020 raised fresh doubts on when the dispute might end, while a U.S. House bill targeting camps for Muslims in Xinjiang drew Beijing’s ire.
The U.S. House of Representatives’ approval of a bill requiring the Trump administration to toughen its response to China’s crackdown on Uighur Muslims in the western region of Xinjiang could deal another setback to the trade negotiations.
The Uighur bill, which was passed 407-1 in the Democratic-controlled House, requires the U.S. president to condemn abuses against Muslims and call for the closure of mass detention camps in Xinjiang. It calls on Trump to impose sanctions for the first time on a member of China’s powerful politburo, Xinjiang Communist Party Secretary Chen Quanguo.
Beijing called the bill a malicious attack on China, demanded the United States keep it from becoming law and said it would act to defend its interests as necessary.
· The United States will not speculate on possible future actions by China in response to the U.S. House bill targeting camps for Muslims in western Xinjiang region, the U.S. Embassy in Beijing said on Wednesday.
“We continue to call on the PRC to immediately release all those arbitrarily detained, and to end its draconian policies that for more than two years have terrorized its own citizens in Xinjiang,” the embassy said an emailed statement to Reuters, quoting an unnamed spokesperson. It was referring to China by the initials of its official name, People’s Republic of China.
· The top diplomat in China’s government arrived in Seoul on Wednesday, visiting South Korea for the first time in more than four years as the two countries seek to repair ties that soured over the deployment of U.S. anti-missile systems in South Korea.
· The U.S. solar industry warned on Tuesday that the Trump administration’s tariffs on imported panels will cost the United States 62,000 jobs and $19 billion (£14.81 billion) in investment, an estimate the White House dismissed as “fake news”.
· India’s central bank is expected to slash rates on Thursday after recent data revealed economic growth slowed to a six-year low, but economists questioned the effectiveness of further rate cuts.
Economists on average predicted the RBI to cut its repo rate by 25 basis points to 4.90% this week and then by another 15 basis points in the second quarter of 2020, Reuters reported.
· Capital investment by Chinese firms has ground to its slowest pace in three years, as a weakening economy, tight credit and prolonged trade war with the United States dent sales growth and cash reserves, a Reuters analysis showed.
Companies are also spending more days to turn inventory into sales and eking out smaller profit gains, the analysis showed, in an economy growing at its weakest pace in nearly three decades, with many analysts expecting the slowdown to intensify.
The outlook became even more uncertain on Tuesday after U.S. President Donald Trump said a trade deal with China might have to wait until after the U.S. presidential election in November 2020.
“Things will get much worse before getting better,” economists at Macquarie said in a client note on Monday. Even positive economic data from China recently is volatile and vulnerable to one-off factors such as warm weather, they said.
“After all, the so-called phase 1 deal is mainly about preventing things from getting worse, instead of making things significantly better,” they said, referring to negotiations in a 16-month Sino-U.S. trade war punctuated by tit-for-tat import tariffs.
Chinese firms raised capital spending by 1.6% in the three months through September versus the same period a year prior, the weakest growth in three years, showed a Reuters analysis of about 2,900 firms with market capitalization above $100 million.
· U.S. President Donald Trump and French leader Emmanuel Macron clashed over the future of NATO on Tuesday before a summit intended to celebrate the 70th anniversary of the Western military alliance.
Macron, the French president, stood by comments he made last month describing NATO as suffering from a lack of strategic purpose akin to “brain death”, and criticized fellow NATO member Turkey, which he accused of working with Islamic State proxies.
· Oil gained on Wednesday ahead of meetings this week where OPEC and its allies are expected to extend production curbs to support the market, while industry data showing that U.S. crude stockpiles fell more than expected helped to lift prices.
Brent crude LCOc1 futures were up 44 cents, or 0.7%, at $61.26 a barrel by 0706 GMT.
U.S. West Texas Intermediate (WTI) crude CLc1 futures were up by 38 cents, or 0.7%, at $56.48.
· OPEC and its allies led by Russia are gearing up to approve deeper oil production cuts this week to prevent a new glut and a collapse on oil prices with OPEC member Iraq saying the move was supported by key members.
Non-OPEC Russia also said it was expecting a constructive meeting as OPEC leader Saudi Arabia presses fellow producers to deepen cuts to increase its budget revenue and raise a good price from the share sale of oil giant Saudi Aramco.
Reference: Reuters, CNBC, FX Street
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