U.S unemployment insurance weekly claims

In the week ending August 4, the advance figure for seasonally adjusted initial claims was 213,000, a decrease of 6,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 218,000 to 219,000. The 4-week moving average was 214,250, a decrease of 500 from the previous week’s revised average. The previous week’s average was revised up by 250 from 214,500 to 214,750.

The advance seasonally adjusted insured unemployment rate was 1.2 percent for the week ending July 28, unchanged from the previous week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending July 28 was 1,755,000, an increase of 29,000 from the previous week’s revised level. The previous week’s level was revised up 2,000 from 1,724,000 to 1,726,000. The 4-week moving average was 1,745,250, an increase of 3,000 from the previous week’s revised average. The previous week’s average was revised up by 500 from 1,741,750 to 1,742,250.

Read more Department of Labor

Turkish lira loses another 3%

Thursday August 9: Five things the markets are talking about

The geopolitical tension theme continues to dominate capital markets, now that China has responded to the U.S’s tariff onslaught with additional tariffs of its own.

In currencies, the market is again focused on sterling (£1.2852) as it encroaches on its new 12-month low as politics continues to provide the overriding direction for the currency.

And then there is the Turkish lira ($5.4210) as it makes it way towards record lows on market worries about President Erodgan’s grip on monetary policy and on a deepening dispute with the Trump administration.

Down-under, the kiwi (NZ$0.6645) has plummeted to a two-year low after the Reserve Bank of New Zealand (RBNZ) pushed out its forecast for a rate increase.

Elsewhere, oil has extended its drop as trade tensions again overshadow a decline in U.S crude stockpiles. Most industrial metals gained, while gold prices ease.

1. Stocks mixed reaction on low volumes

In Japan, the Nikkei edged lower overnight as a stronger yen (¥111.00) impeded investor risk appetite. Not helping was the auto sector, which saw a sell-off on news that certain automakers improperly conducted vehicle inspections in the domestic market. The Nikkei share average dropped -0.2%, while the broader Topix lost -0.3%.

Down-under, Aussie shares rallied overnight on a stronger earnings season. The S&P/ASX 200 index rose +0.5%. In S. Korea, the Kospi stock index produced a small gain, rallying +0.10%.

In Hong Kong and China, shares ended higher as tech firms rally on hopes of China policy boost. The Hang Seng index was up +0.88%, while the Hang Seng China Enterprises index rose +1.09%. In China, the Shanghai Composite index ended +1.9% higher, while China’s blue-chip CSI300 index closed up +2.5%.

In Europe, regional bourses are trading mostly lower in quite trading. U.S stocks are set to open little changed.

Indices: Stoxx600 -0.2% at 388.8, FTSE -0.6% at 7729, DAX 0.0% at 12633, CAC-40 -0.2% at 5492, IBEX-35 0.0% at 9755, FTSE MIB +0.0% at 21801, SMI -0.3% at 9149 S&P 500 Futures 0.1%

2. Oil finds some support after a -3% drop Wednesday, gold steady

Oil prices are a tad higher after yesterdays steep slide, when the first round of U.S sanctions against Iran came into effect. Not providing much support is investor worries that crude demand will and has been hit by the escalating Sino-U.S trade dispute.

Brent crude futures are up +14c at +$72.42 barrel, after having dropped by more than -3% yesterday. U.S crude futures (WTI) have rallied +8c to +$67.02 a barrel, having closed down -3.2% Wednesday.

With U.S sanctions against Iran, which shipped out +3M bpd of crude in July, officially came into effect on Tuesday and the market is anticipating that supply losses could range from +600K to +1.5M bpd.

Stateside yesterday, the weekly EIA report showed that crude inventories fell -1.4M barrels last week, less than half the -3.3M barrel draw the market had expected and that gas stocks rose by +2.9M barrels, compared with expectations for a drop of -1.7M barrel drop.

Ahead of the U.S open, gold prices are mostly steady in a range-bound overnight session, as a stronger dollar continues to weigh on upside momentum. Spot gold is up +0.1% at +$1,214.23 an ounce, having gained +0.2% Wednesday.

3. RBNZ Extra Cautious

Reserve Bank of New Zealand (RBNZ) Governor Orr left interest unchanged at +1.75% as expected, while moving the timing of any future increase to Q4 in 2020 from Q1 in the same year.

Assistant Governor McDermott indicated that the chance of a rate cut had increased and wanted the market to understand that they needed to see core-inflation above +2% for any rate hike. The direction of the next move could be “up or down,” he says. The cautious comments saw the NZD ($0.6650) weaken by -0.45% outright.

Elsewhere, the yield on 10-year Treasuries decreased -1 bps to +2.95%. In Germany, the 10-year Bund yield dipped -2 bps to +0.39%, while in the U.K, the 10-year Gilt yield also declined -2 bps to +1.299%.

4. Turkish lira loses another 3% outright

The Turkish lira has hit a new record low this morning as it weakens as much as -3% outright on souring relations with the U.S over the detention of an American pastor. USD/TRY is last up +2.3% at $5.3994, after it hit a record high of $5.4488 earlier.

EUR/USD (€1.1596) is holding below the €1.16 level as the techies continue to watch their significant support level at €1.15. A break opens the door for a possible test to €1.10 handle.

GBP (£1.2890) remains on the softer side on a ‘no-deal’ Brexit worries. The pair tested its 11-month low atop of £1.2850 earlier this morning.

USD/JPY (¥111.14) is a tad higher, but stable ahead of the U.S-Japan trade talks that begin in Washington later today.

RUB ($65.88) is weaker by -1%, testing its two-year low outright following the U.S State Department announcement on Russian sanctions related to a chemical agent being used in a U.K spy attack last March.

5. ECB economic bulletin highlight

According to the ECB in its regular economic bulletin released earlier this morning, the risks to global growth are growing.

“Downside risks to the global economy have intensified amid actions and threats regarding trade tariff increases by the United States and possible retaliation by the affected countries,” the ECB said in an assessment.

The ECB added that if all the threatened measures were to be implemented, the average U.S tariff rate would rise to levels not seen in the last 50-years.

Note: A fortnight ago, the ECB kept policy unchanged, staying on course to end its QE program by the close of the year and to raise rates for the first time since the euro zone debt crisis in the autumn of 2019.

Forex heatmap

China to Add 25% Tariff on $16B of US Imports

China is slapping additional tariffs of 25 percent on $16 billion worth of U.S. imports from fuel and steel products to autos and medical equipment, the Chinese commerce ministry said, as the world’s largest economies escalated their trade dispute.



The tariffs will be activated on Aug. 23, the ministry said, the same day that the United States plans to begin collecting 25 percent extra in tariffs on $16 billion of Chinese goods.

via Reuters

Germany to Increase Oversight in Foreign Investment Deals

Germany is to increase its powers to block foreign investments by significantly lowering the threshold for deals that can be subject to ministerial veto, in a further sign of growing protectionist sentiment towards Chinese acquisitions.

Berlin can veto deals that involve the purchase of at least 25 percent of the equity of a German company by an entity from outside the EU, and only if they endanger public order or national security. Ministers now want to reduce that threshold to 15 per cent.

Peter Altmaier, economics minister, told the newspaper Die Welt that the threshold would be lowered “so that we can check more acquisitions in sensitive sectors of the economy”. Die Welt said the new bill could come into force this year.

via CNBC

Saudi Arabia sells off Canadian assets, loonie falls

It’s being reported by FT that the Saudi’s are selling off Canadian assets in response to Ottawa’s criticism of the arrest of a female activist last week.

Apparently, the Saudi central bank and state pension funds have been instructed to dispose of their Canadian equities, bonds and cash holdings.

There is no Canadian dollar amount being proposed, but its believed that Saudi funds have in excess of +$100B invested in overseas markets. Canada’s proportion should be a small percentage.

The loonie has been offered since yesterday, currently trading a tad shy of C$1.3100, down -0.3% at C$1.3082.

Currently, markets have been looking at Canada’s recent economic strength and wondering if Bank of Canada (BoC) is on target to hike rates at next months policy meeting.

Last weeks Canada’s GDP and Trade balance reports beat markets expectations and give CAD/USD a lift to C$1.2967 on Aug 3. Given Governor Poloz’s commitment to moving gradually and his concern over the economy’s sensitivity to rate rises, a September move is becoming more remote, especially without a signed Nafta deal.

Canadian employment

Friday’s Canadian employment numbers should have an impact, especially if we get another strong headline print – +18Ke vs. +31.5K for June. Many are also expecting the unemployment rate to improve a tad to +5.9% vs. +6%.

Politics takes down the pound

Wednesday August 8: Five things the markets are talking about

Trade concerns continue to hover over capital markets. Yesterday, the U.S indicated that it will begin imposing another +25% duties on an additional +$16B in Chinese imports beginning in a fortnight. On the first go around, China swore to retaliate, they have yet to give specifics, but at the very least, it will be an in-kind retaliation.

Data overnight showed that China’s exports grew faster than expected last month and imports surged, which suggest that the “ongoing” trade war has yet to have a material impact on the worlds second largest economy’s bottom line.

Nevertheless, the prospects for a full blown trade war has the U.S dollar remaining better bid on pullbacks in a relative tight summer range.

Sovereign yields, further out the curve, trade a tad higher as dealers make room to take down today’s record amount of 10-year Treasury debt worth +$26B, and an all-time high of +$18B in 30-year bonds tomorrow.

In currencies, the market is focused on sterling (£1.2904) as it encroaches on its 11-month low as politics continues to provide the overriding direction for the currency. And then there is the Turkish lira ($5.2923) as it makes it way towards record lows on market worries about President Erodgan’s grip on monetary policy.

On tap: The Reserve Bank of New Zealand’s (RBNZ) official cash rate decision and monetary policy statement is due this afternoon (05:00 pm EDT). No change in rates or accompanying statement is expected.

1. Stocks mixed overnight session

In Japan, the Nikkei edged lower overnight as the market waits for the start of U.S-Japan trade talks. Will the U.S be taking a hard stance, similar to that of China and Europe? Both the Nikkei and broader Topix ended -0.1% lower.

Down-under, Aussie shares rallied overnight, with financials higher after reporting a smaller fall in profit than expected, and while miners gained on strong import data from China. The benchmark S&P/ASX 200 index rose +0.2%, erasing most of Tuesday’s losses. In S. Korea, the Kospi index rose modestly, closing out 0.06% higher.

In Hong Kong, shares rise on tech and energy boost, but fears of a deeper trade war is capping gains. At close of trade, the Hang Seng index was up + 0.39%, while the Hang Seng China Enterprises index rose +0.32%. In China, the Shanghai Composite index closed down -1.23% while its blue-chip CSI300 index ended down -1.59% mostly on profit taking after Tuesday stellar session.

In Europe, regional bourses trade mostly lower, pressured generally by weaker earnings out of Europe.

U.S stocks are set to open little changed (+0.0%).

Indices: Stoxx600 -0.2% at 389.8, FTSE +0.3% at 7742, DAX -0.2% at 12627, CAC-40 -0.1% at 5517, IBEX-35 -0.10% at 9762, FTSE MIB +0.0% at 21863, SMI -0.4% at 9167 S&P 500 Futures 0.0%

2. Oil dips on weak China imports, but sanctions and weak U.S stocks support

Oil prices have dipped a tad overnight, pressured by Chinese weaker import data, although the market remains well supported on pull backs by falling U.S crude inventories and the introduction of sanctions against Iran.

Brent crude oil futures are at +$74.50 per barrel, down -15c, or -0.2% from Tuesday’s close. U.S West Texas Intermediate (WTI) crude futures are at +$69.15 per barrel, down -2c.

Data shows that China’s July crude oil imports recovered slightly last month after falling for the previous two-months, but are still amongst the lowest due to a drop-off in demand from the independent Chinese refineries.

With U.S sanctions against Iran, which shipped out +3M bpd of crude in July, officially came into effect yesterday midnight and the market is anticipating that supply losses could range from +600K to +1.5M bpd.

Dealers are also focusing on the U.S market, where yesterday’s API data showed that crude inventories fell by -6M barrels in the week to Aug. 3 to +407.2M.

The market will take its cues from today’s EIA inventory report (10:30 am EDT).

Ahead of the U.S open, gold prices are better bid, supported by a mixed U.S dollar. Spot gold is up +0.2% to +$1,213.02 an ounce, after rising +0.4% in Tuesday’s session.

3. Sovereign yields could back up further

Yesterday, the U.S Treasury Department sold +$34B three-year notes and it was the largest three-year auction in eight-years. Later today, the Treasury will sell a record amount of 10-year debt worth +$26B (1:01 pm EDT) and tomorrow an all-time high of +$18B in 30-year bonds. With so many products on offer, dealers are expected to again cheapen up the curve to make room ahead of the deadline.

The yield on 10-year Treasuries has rallied +1 bps to +2.97%, while Germany’s 10-year bund yield is holding steady at +0.403%. In the U.K, the 10-year Gilt yield has rallied +1 bps to +1.314%.

4. Sterling’s Wild West

Trading GBP/USD (£1.2903) is proving to be a bit like the Wild West – unpredictable – the pound is again threatening to penetrate yesterday’s record 12-month low now that its failed to benefit from last week’s Bank of England rate rise. Markets are now turning their attention to the Brexit process, which will likely dominate trends in GBP for the remainder of this year.

The Turkish lira ($5.2920) has recovered some lost ground after plummeting to new record lows Monday ($5.42), helped by the Central Bank of the Republic of Turkey (CBRT) announcing a cut in the foreign exchange reserve requirement ratio (RRR) for commercial banks, a measure which should boost dollar liquidity. However, this week’s necessary course of action reaffirms the central banks reluctance to hike rates. Nevertheless, the plunge in the currency over the past few weeks is now on a scale, which has, in the past, prompted the CBRT to hike interest rates aggressively.

Will the CBRT hike the repo rate this week? They need to, but will they dare defy President Recep Tayyip Erdogan?

Note: A Turkish delegation is visiting Washington this week to discuss the friction between both countries. But the U.S has stated that they remain at odds on its core demand that Turkey free American an evangelical pastor.

5. China’s trade balance tightens

Data overnight showed that China’s trade surplus narrowed sharply in July, with imports surging as trade tensions with the U.S escalated.

China reported a trade surplus of +$28.05B in July, compared with a surplus of +$41.61B in June. The market was expecting a surplus of +$39.10B.

Digging deeper, exports rose +12.2% y/y, following June’s +11.3% increase. The market was looking for a +10% growth number.

Imports were up +27.3% in July y/y, accelerating from a +14.1% increase the previous month.

China’s trade surplus with the U.S. narrowed to +$28.09B in July from a record monthly high of +$28.90B in June.

Forex heatmap

Aussie unmoved by narrower China trade surplus

Both imports and exports higher than estimate

Imports rose 27.3% y/y in US dollar terms, the fastest pace of growth since January, and beat economists’ forecasts of +16.2% by a large margin. Exports also topped estimates, rising 12.2% y/y, defying speculation that the imposition of the first US tariffs on Chinese imports would have an adverse effect on trade. The trade surplus narrowed to $28.05 billion, giving back most of June’s gains. The stronger imports numbers gave the Aussie a quick knee-jerk boost, but it failed to breach the 55-day moving average at 0.7450 to the US dollar.

AUD/USD Hourly Chart

Source: Oanda fxTrade

 

RBA’S Lowe says no case for near term rate move

In a speech today, RBA Governor Lowe said there is every chance that the next move in rates would be higher, something he he has said before,  if the economy evolves as predicted, but current conditions do not present a convincing case for a move in the near term. He reiterated that the timing of the move would be dependent on unemployment data and inflation moving to the middle of the target range. He also admitted that an escalation of the trade war could be damaging for the global economy. AUD/USD was already mildly higher after the Chinese trade data and the comments assisted the gains, though not aggressively so. The pair is currently trading at 0.7425.

 

Trade wars continue

Late yesterday the US Administration announced it would be imposing 25% duties on another $16 billion of Chinese imports in two weeks, which prompted China to respond that it would retaliate again with dollar-for-dollar tariffs of its own. In a dinner engagement, US President admitted that they are having a troubled relationship with China at the moment, but praised his own trade policies and predicted that Q3 growth would have a “5” in front of it. That seems an ambitious call, given that the most optimistic of forecasters in surveys conducted by Bloomberg sees only 4.4% quarter-on-quarter growth. The median estimate is for just 2.9%.

 

Barren data calendar

It’s another lackluster day on the data front with US mortgage applications and a speech by Fed member Barkin the only items of note. Weekly EIA crude stockpiles feature on the commodities side, while late in the session the RBNZ will announce its latest interest rate decision. No change in rates is expected and the accompanying statement is not expected to differ much from the last meeting.

 

The full data calendar can be found here: https://www.marketpulse.com/economic-events/

Dollar steady as China trade data looms

The US dollar had a bit of a rollercoaster ride yesterday as weakness in the Asian session was reversed in the US session and the greenback finished almost where it started the day. PBOC’s “verbal intervention” to stabilize the yuan helped cap the dollar’s strength.

PBOC warns don’t follow the herd

In a meeting with local bankers, the PBOC urged them not to adopt a herd mentality when it comes to the local currency and not just sell for the sake of selling. PBOC officials were adamant that they have plenty of tools to stabilize the currency. USD/CNH is now trading at one-week lows as it retraces a part of the near-11% rally since end-March.

Cannot keep the ‘big’ dollar down

Oil prices higher for a third day

Oil prices rose for a second day yesterday as Iran sanctions took hold and concerns about Saudi Arabia’s output continued. The weekly EIA crude inventory data are due later today and are expected to show a drawdown of 3.37 million barrels in the week to July 30, according to the latest survey of analysts, almost completely wiping out the increase of 3.8 million barrels seen last week. Yesterday API data on stockpiles showed a hefty drawdown of six million barrels. WTI is slightly higher so far this morning, trading at 69.558

WTI Daily Chart

Source: Oanda fxTrade

China trade data on tap

China’s trade data for July this morning will be released later this morning with estimates suggesting the trade surplus narrowed to $39.3 billion from $41.5 billion. Markets could be braced for an even lower number given that July is the month when the first tariffs were imposed. Imports are seen rising 10.0% y/y in dollar terms, slower than June’s 11.2% growth, while imports are seen gaining 16.2% y/y. A strong imports number could be beneficial for the Aussie given Australia’s reliance on China as an export market. AUD/USD is currently at 0.7425 with the 55-day moving average sitting above at 0.7450

Source: MarketPulse

Today’s full data calendar can be seen at: https://www.marketpulse.com/economic-events/

Cannot keep the ‘big’ dollar down

The European and Asian sessions were happy to book ‘long’ dollar profits, but North America has decided to renew their acquaintance with the dollar bulls.

A lack of major economic data releases and a stabilizing Chinese yuan overnight provided a temporary reprieve for risk assets and EM currencies.

Another strong JOLTS jobs opening report (+6.66M) has provided the dollar some early support, enabling it to retrace some of its overnight losses.

Sterling’s Wild West

Trading GBP/USD (£1.2943) is proving to be a bit like the Wild West – unpredictable – the pound is again threatening to penetrate yesterday’s record 12-month low now that its failed to benefit from last week’s Bank of England rate rise. Markets are now turning their attention to the Brexit process, which will likely dominate trends in GBP for the remainder of this year.

Loonie failing to fly

USD/CAD (C$1.3020) is another early looser against the dollar, despite crude oil prices remaining better bid now that the U.S has re-introduced sanctions against oil exporter Iran that is expected to tighten global supply.

The loonie has lost some appeal with the Can Ivey July PMI producing a disappointing headline (61.8 vs. 64.2). Dollar bulls want to see C$1.3040 break before adding to their ‘short’ CAD positions again.

Turkish lira takes a bath

The Turkish lira ($5.2492) has recovered some lost ground after plummeting to new record lows yesterday ($5.42), helped by the Central Bank of the Republic of Turkey (CBRT) announcing a cut in the foreign exchange reserve requirement ratio (RRR) for commercial banks, a measure which should boost dollar liquidity. Turkish 10-year bond yields have backed up +25 bps to +20%.

Yesterday’s necessary course of action reaffirms the central banks reluctance to hike rates.

However, the plunge in the currency over the past few weeks is now on a scale, which has, in the past, prompted the CBRT to hike interest rates aggressively. Will the CBRT hike the repo rate this week? They need to, but will they dare defy President Recep Tayyip Erdogan?

With little economic data to hang your hat on, low volumes and market participation, most investors prefer to wait for a significant breakout in any of the G7 pairs before participating with any gusto.

Dollar rally takes a time out

Tuesday August 7: Five things the markets are talking about

Most global equities found traction overnight as earnings season continues, helping support investor sentiment against a backdrop of trade worries and geopolitical concerns.

The trend for a rising U.S dollar is taking a pause, with the dollar edging lower against G10 currency pairs. A lack of major economic data releases and a stabilizing Chinese yuan suggest a reprieve for risk assets and EM currencies today.

This week brings relatively little economic data, but investors will tune in Friday when July’s U.S CPI is reported – a pickup in inflation could temper the dollar’s rally?

Overnight, the Reserve Bank of Australia (RBA) held rates steady for the 21st time, a move that had been unanimously expected. Tomorrow, the Reserve Bank of New Zealand (RBNZ) is expected to maintain its current interest rate of +1.75%.

Elsewhere, crude prices have climbed after Saudi Arabian production cuts added to market concern about tightening supplies. Gold has advanced with industrial metals.

In fixed income, euro bonds are mixed, while U.S 10’s remains range bound.

1. Stocks see the light

In Japan, the Nikkei share average gained overnight after index-heavyweight SoftBank jumped on the back of strong Q1 results, while a rebound in Chinese shares also helped market sentiment. The Nikkei ended up +0.7%, while the broader Topix rallied +0.8%.

Down-under, Aussie stocks were one of the worst performers overnight as the market was held back by a deep pullback in the materials sector. The S&P/ASX 200 fell -0.3% as BHP Billiton retreated -1.4%. In S. Korea, stocks overcame some opening-hour softness to rise solidly, capped by a rally into the close. The Kospi finished up +0.6% as index giant Samsung climbed +2%.

In Hong Kong, shares ended higher as property stocks gained. Both the Hang Seng index and China Enterprises index rallied +1.5%.

In China, stocks rebounded overnight following a heavy four-day selloff, with infrastructure names leading the charge. The Shanghai Composite index jumped +2.7%, while the blue-chip CSI300 index was up +2.92%, its biggest percentage jump in two-years.

In Europe, regional bourses trade higher across the board following on from strong Asian Indices and positive U.S futures.

U.S stocks are set to open higher (+0.3%).

Indices: Stoxx600 +0.6% at 391.0, FTSE +0.7% at 7719, DAX +1.0% at 12725, CAC-40 +0.9% at 5526, IBEX-35 +0.5% at 9797, FTSE MIB +1.0% at 21803, SMI +0.5% at 9193 S&P 500 Futures +0.3%

2. Oil rallies as renewed U.S sanctions on Iran seen tightening supply

Oil prices are better bid now that the U.S has re-introduced sanctions against oil exporter Iran that is expected to tighten global supply.

Spot Brent crude oil futures are at +$74.17 per barrel, up +42c, or +0.6%, from yesterday’s close. U.S West Texas Intermediate (WTI) crude futures are up +30c, or +0.4%, at +$69.31 barrel.

Note: U.S sanctions against Iran, which shipped out +3M bpd of crude in July, officially came into effect at 12:01 am EDT this morning.

The market is anticipating that supply losses could range from +600K to +1.5M bpd.

Ahead of the U.S open, gold prices are better bid, supported by a weaker U.S dollar. Spot gold is up +0.4% at +$1,210.99 an ounce, while U.S gold futures are flat at +$1,217.6 an ounce.

3. Sovereign yields remain range bound

Overnight, RBA left its cash rate target unchanged at +1.50% as expected. Aussie policy officials see CPI a bit lower this year, but higher in 2019-20 period.

Doing the rumour rounds – the Bank of Japan (BoJ) board is said to have considered raising rates before tweaking policy in July – BoJ said to have deliberated tightening in January, but did not do it amid market turbulence. The moves the BoJ took last week are said to be a compromise between board member Amamiya and Governor Kuroda.

Last week, the Fed turned up the rate-hike heat, upgrading both economic activity and household spending from the “solid” to the “strong” camp. Futures prices are setting up another rate hike at the September FOMC meet. However, beyond that, the Fed’s timing will ultimately be decided by incoming data – last week was perhaps less in the ‘strong’ and more in the ‘solid’ camp.

The yield on 10-year Treasuries have rallied less than +1 bps to +2.94%, while the yield on Germany’s 10-year Bund is stable after sliding below +0.40% yesterday. The current yield trades at +0.39%. In the U.K, the 10-year Gilt yield has rallied +1 bps to +1.304%.

4. Turkish lira reprieve

Trade tensions remain the predominate theme, but the USD is seeing some consolidation in its recent strength as Treasury bond yields ease a tad.

The Turkish lira ($5.2406) has recovered some lost ground after plummeting to new record lows yesterday ($5.42), helped by the Central Bank of the Republic of Turkey (CBRT) announcing a cut in the foreign exchange reserve requirement ratio (RRR) for commercial banks, a measure which should boost dollar liquidity. Turkish 10-year bond yields have backed up +25 bps to +20%.

Yesterday’s necessary course of action reaffirms the central banks reluctance to hike rates.

Note: The plunge in the currency over the past few weeks is now on a scale, which has, in the past, prompted the CBRT to hike interest rates aggressively. Will the CBRT hike the repo rate this week?

Sterling is trading atop of its one-year low outright yesterday, falling -0.5% to £1.2935, amid concerns the U.K. might fail to reach an agreement on Britain’s exit from the E.U. Pressure on the pound has come after U.K Trade Secretary Fox estimated there is a +60% chance that “no” Brexit deal would be reached.

EUR/USD (€1.1558) has stayed above the psychological €1.15 handle for the time being and remains confined to its recent trading range.

5. Mounting trade tension starting to bite German data

Data this morning showed that German exports were flat in June compared with May, which may suggest that mounting trade tensions are starting to bite.

Imports, however, rose +1.2% on the month. As a consequence, Germany’s adjusted trade surplus narrowed to +€19.3B in June from +€20.4B in May.

Other data showed that German industrial output declined in June by -0.9% from a month earlier, slightly more than expected, but total production rose +2.5% when taking calendar effects into account.

The fear about a potential trade war will continue to bring uncertainty, and uncertainty will bring a delay in investment decisions.

Forex heatmap