OANDA Market Insights podcast (episode 24)

OANDA Senior Market Analyst Craig Erlam reviews the week’s business and market news with Jazz FM Business Breakfast presenter Jonny Hart.

This week’s big stories: Trump attacks Fed over rate rise, UK inflation figures hit sterling, Barnier dismisses Brexit white paper , Google fined record sum.

USD Weaker After Trump Interest Rate Comments

Canada: Inflation Hit Six-Year-Plus High

Dollar Rally Ends With Trump Monetary Policy and Currency War Comments

 

China GDP growth slows in Q2

China Q2 GDP growth as expected, though lower than Q1

In this morning’s China data dump, Q2 GDP growth came in as expected but industrial production disappointed. The Chinese economy grew 6.7% y/y in Q2, a slower pace than in Q1 but was in line with economists’ forecasts. Industrial production for May on the other hand failed to match expectations, coming in at +6.0% y/y compared with estimates of 6.5% and a marked slowdown from April’s 6.8% increase.

In other data releases, June retail sales matched forecasts at +9.0% y/y, rising from +8.5% in May while fixed asset investment also equaled forecasts with a 6.0% y/y increase in May.

Source: Oanda MarketPulse

Equity markets fall; currencies stable

In a knee-jerk reaction, markets appeared to focus on the fact that Q2 growth was lower and industrial production missed. Given that the full impact of the first tariff implementations will not be truly felt until Q3, the growth outlook will become more cloudy going forward. AUD/USD slid to a low of 0.7408 though rebounded to near intra-day highs at 0.7434 in late trading.

In the equity space, China shares reacted negatively to the data with the China index sliding 1.72% as the specter of trade wars continues to dog local counters.  The Australia and Singapore indices dropped 0.32% and 0.56% respectively. Japan equity markets were closed for a holiday.

AUD/USD Daily Chart

Source: Oanda fxTrade

China says tariffs to have limited impact on inflation

In a press conference post-data, a China National Bureau of Statistics spokesperson Mao Sheng Yong said trade frictions are unlikely to have a significant impact on CPI and may see a subdued rise in prices in H2. On the outlook for the economy, Mao said the Bureau expects no change in China’s slow/steady growth path though acknowledged the trade sector faces challenges in H2.

Trade, earnings, teapots and the US dollar

In an apparent rebuff at the US and Trump’s trade aggression, Chinese Premier Li said, while meeting EU officials Juncker and Tusk, that China and the EU would uphold multilateralism and free trade as they exchanged offers on a bilateral investment treaty.

Euro-zone trade surplus to widen

The major events on the rest of today’s calendar feature Euro-zone trade balance for May, where the surplus is expected to widen to EUR19.7 billion from EUR18.1 billion, according to economists’ forecasts. US data includes retail sales for Jun, seen at +0.6% m/m which is lower than May’s +0.8% but with be the fourth consecutive month of positive month-on-month growth.

You can access the full data calendar on MarketPulse at https://www.marketpulse.com/economic-events/

Oanda Market Insights Episode 23

Markets higher as earnings season gets underway

Earnings season eyed as trade war fears remain

We’re seeing some risk appetite return on Friday even as concerns about trade remain front and centre and shows no signs of improving.

European equity markets are trading in the green on Friday, taking the lead from the US session on Thursday where tech stocks drove a rally that saw the NASDAQ hit a record high. With earnings season getting underway, investors will be looking for reasons to be more optimistic having spent months reading about the risks that a trade war poses to the economy.

JP Morgan, Citigroup and Wells Fargo will kick things off today and over the coming weeks, investors will be paying close attention not just to the results but also references to trade tariffs and the impact they are expected to have on future results, particularly those that have already been targeted in counter-measures taken or proposed against the US.

DAX steady as investors search for cues

Sterling slips as Trump warns of risks to US/UK trade deal

Trump has very much been in the spotlight this week, attending the NATO summit in Brussels before heading over to the UK to meet Prime Minister Theresa May. As ever, Trump was not afraid to express his views on the UK and Brexit ahead of the visit, warning that a trade deal with the US would not be possible under the model that May is seeking with the European Union, while also expressing his belief that Boris Johnson would make a good PM. This appears to have weighed on the pound in trade on Friday given the complications it could cause May and her team.

None of this will go down well with May – who has previously pushed strongly for this visit despite much protest – and comes at a terrible time for her but as Trump well knows, she is in a very weak position right now and is unlikely to fight back and, more importantly, he wants a Brexit that best suits the US. Whether Trump’s comments give more voice to dissenters among Brexiteers is yet to be seen but it certainly doesn’t help the PM as a trade deal with the US has long been touted as one of the benefits of leaving the EU.

First signs of tariffs impact in China’s June trade numbers

Chinese trade surplus increases as Trump plans more tariffs

Chinese trade data released overnight may be used as a source for Trump’s next attack on the world’s second largest economy, with exports having soared once again – rising 11.3% – increasing the surplus the country has with the US to $41.61 billion in June. While the main reason for such a spike is likely to be exporters front loading sales ahead of the tariffs being implemented, it’s likely that a stronger US economy and weaker yuan is also playing a role.

I expect this will be used as another example of the bad trade policies that Trump has repeatedly references but been unable to so far influence. Trump is attempting to force them back to the table with threats of another $200 billion in tariffs, something that has so far only been met with retaliation from China and others.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

First signs of tariffs impact in China’s June trade numbers

Imports drop as tariff wars bite

Today’s release of China’s trade data for June showed imports starting to feel the effect of tariff implementation, while exports managed a small increase. Imports rose a mere 14.1% in dollar terms, below the estimate of 20.8% and a severe drop from May’s 26.0% advance. Exports held up, recording 13.8% growth compared with a forecast of 10.0% and the previous month’s 12.6% gain. The trade surplus ballooned to $41.6 billion from $24.9 billion on the lower import bill.

At the same time, data for the first six months of the year were also released. Exports to the US rose 13.6% in dollar terms while imports climbed 11.8%. Commenting after the release, China Customs official Huang Song Ping said the H1 growth sets a solid foundation for the full year, though there are downward risks in H2.

China Data Calendar July 13

Source: MarketPulse

US economy “in a good place”

In a radio interview yesterday, Fed Chairman Jerome Powell said he believes the US economy remains in a “good place” with recent tax cuts and spending programs likely to boost GDP for the next three years, adding that it is unclear how the trade disputes will end.

Fed Chairman Powell

Note: Powell will appear before Congress next week for his semiannual Humphrey Hawkins testimony.

EU growth forecast scaled back

Yesterday the European Commission cut its forecast for Euro-zone economic growth this year to 2.1% from 2.3% previously due to ongoing trade tensions with the US and rising oil prices. It singled out Italy as one to suffer most, with its growth forecast slashed to just 1.3%, the lowest among the 28-member bloc, citing ”re-emerging concerns or uncertainty about economic policies”. Germany and France, the two largest economies in the zone, are also expected to lose steam with forecasts of 1.9% and 1.7% respectively. This compares with 2.2% both economies grew by last year.

Fed’s Monetary Policy Report is the data highlight

The week finishes with a relatively nondescript data calendar. BOE’s Cunliffe, who sits on the dovish side of the fence, is scheduled to speak and it’s doubtful he will say anything different to his stance. US export and import prices feature in the US session while the Fed’s monetary policy report comes later. FOMC member Bostic closes off the week ahead of the weekly Baker Hughes oil rig count.

You can access the full data calendar on MarketPulse at https://www.marketpulse.com/economic-events/

Have a great weekend.

US Inflation Eyed as Markets Pare Losses

Markets higher after tariff-related losses

It’s been a more positive start to trade on Thursday, with equity markets in the green and paring Wednesday’s losses as investors continue to weigh up what impact the latest trade tariffs will have on the global economy.

While markets have typically reacted negatively to any escalation on trade, the overall impact has been relatively modest under the circumstances which suggests investors are far from panic mode right now. Many agree that tariffs will ultimately be bad for the global economy and therefore markets but there still seems to be some hope that common sense will prevail and a full blown trade war will be averted.

With Donald Trump now pursuing another $200 billion in tariffs against China though, we may have to wait a while as he is not easing up and China – and others – is determined to prove it will not be bullied into submission. Perhaps if the economy starts to suffer or the Republicans do badly in the midterms in November Trump will be forced to consider an alternative approach.

Equities shrug off trade tariff tensions

US inflation seen rising further

As it stands though, the economy is doing very well – aided by last year’s tax reforms – and the Federal Reserve is on course to raise interest rates twice more this year, having increased them on two occasions already. The central bank is clearly more concerned about the economy overheating right now than the prospect of a trade war – although this is also on their radar – and the inflation data we’ve seen very much justifies their view.

While CPI is not the Fed’s preferred measure of inflation, it does provide valuable insight and is typically released a couple of weeks before the core PCE price index. Today’s release is expected to show prices rising by 2.9% in June compared to a year earlier, with core inflation having risen by 2.3%, above the Fed’s 2% target. The core PCE price index may be a little behind this at 2% but this is at target and on the rise. Any unexpected increase today may suggest a similar rise is on the cards for the PCE numbers as well.

(Update 1) A tenuous and unstable state of affairs

ECB minutes eyed after dovish tightening last month

The minutes from the most recent European Central Bank meeting will also be released today. The ECB confirmed at the last meeting that it will end its quantitative easing program at the end of the year and won’t raise interest rates until at least the middle of 2019, which was largely in line with expectations. The dovish spin that was put on it though weighed on the euro at the time and it will be interesting to see whether the minutes have a similar impact.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

Investors turn risk-averse on tariff war escalation

US announces list of next tariff targets

The US close was looking hunky dory, with equity markets aiming for a higher close as there appeared to be a lull in trade war rhetoric, once the first salvos had been fired last weekend. Then BOOM! Headlines that the US was set to announce the list of the next $200 billion worth of Chinese goods targeted for a 10% tariff hit the wires. Once the contents of the list were known, the sour tone intensified as a general risk-averse mood permeated through markets during the Asian session.

News reports say the list runs to more than 200 pages and refers to goods from TV components, food products, tobacco, raw materials and even badger hair! The tariffs are scheduled to be implemented after public consultations end on August 30. Bloomberg also notes that China only imports about $136 billion worth of US goods, so it could be interesting to see how countermeasures match up. The only reaction from China so far has been from the Ministry of Commerce which stated the latest round of tariffs interferes with the globalization of the world economy and harms the WTO trade order. It reiterated that cooperation is the only correct choice for US-China relations, though vowed to roll out a response.

When the going gets tough, the tough get going

Equities and yuan suffer

In reaction, the Nikkei225 fell up to 1.86% while China shares slumped as much as 2.76%, as investors once again tried to gauge the true impact on the Chinese economy and companies. In the currency space, the yen was bid, rising 0.69% versus the AUD, 0.07% versus the EUR and 0.05% against the pound. It did, however fail to gain ground against the dollar. The offshore yuan was under pressure the whole session, falling as much as 0.63% versus the dollar to hit 6.69190.

NOTE: Last time the offshore yuan weakened through 6.70, on July 3, the PBOC stepped up its comments on the tools it has to adjust policy

Aussie data ignored

Australian data releases were generally positive. The Westpac consumer confidence index jumped 3.9% in July, home loans rebounded in May, signaling the first growth in six months while home loans for investment purposes fell a less-than-expected 0.1%. The good data couldn’t help the local dollar which was caught up in the broader risk-averse trade. AUD/USD is down 0.72% at 0.7405 having failed to penetrate the 0.75 handle in the previous two sessions.

AUD/USD Daily Chart

Source: Oanda fxTrade

Bank of Canada decision on the radar

The highlight of today’s data calendar will likely be the Bank of Canada rate decision where market consensus is that the central bank will hike rates for the first time in four meetings as it seeks to close the rate gap with the Fed. Expectations are for a 25bps increase to 1.50%. The press conference will be monitored for hints on future guidance on rate trajectory. USD/CAD is currently at 1.31366.

Bank of Canada Expected to Hike on Wednesday

Other data bites include speeches from ECB’s Draghi, Praet and Mersch, US producer prices for June and wholesale inventories for May. Speeches continue later in the day with BOE’s Carney and Fed’s Bostic and Williams all on tap.

You can access the full data calendar on MarketPulse at https://www.marketpulse.com/economic-events/

Oanda Live FX Market Analysis

China Seeks Closer Ties With Europe After US Tariffs

China is looking to the European Union as its new best friend amid trade frictions with the United States.

Prime Minister Li Keqiang met eastern and central European leaders in Sofia, Bulgaria, on Saturday, and vowed to open up China’s economy to the wider world. Keqiang is also meeting German Chancellor Angela Merkel on Monday and next week, in Beijing, he will host an EU-China summit.

“Opening up has been a key driver of China’s reform agenda, so we will continue to open wider to the world, including widening market access for foreign investors,” he said. “Countries are welcome to board China’s economic express to share opportunities of China’s development.”

CNBC