OANDA Trading Podcast : BFM 89.9 Kuala Lumpur

 

Stephen Innes, Head of Trading in Asia-Pacific at Singapore-based OANDA, discusses the escalation in the trade dispute between China and the US, examining the economic and fiscal permutations of deteriorating global conditions, as well as the policy and non-policy weapons at China’s disposal.

Innes also discusses China manufacturing data and the upcoming FOMC meeting and America’s rate policy going into 2019 and beyond.

Stephen Innes Head of Trading Asia @steveinnes123

 

BFM Radio 89.9 Kuala Lumpur

Oil pushes higher; Equities sag

Asian equity markets struggled to follow through on the positive close on Wall Street with most major indices in the red. The Nikkei225 slid 0.75%, Hang Seng 0.27% and China shares eased off 0.24%. There was a marginal bid tone to the US dollar as US 10-year yields edged closer to 3%.

 

Oil extends yesterday’s gains

Whether it’s because of Hurricane Florence, falling inventories or looming Iran sanctions, oil prices surged yesterday, with WTI having its best up-day since June 26. This morning’s action saw prices consolidate the up-move and push marginally higher to an eight-day high of $70.347.

 

WTI Daily Chart

Source: Oanda fxTrade

 

Yesterday’s Russia’s Energy Ministry said it had potential to raise production by 300,000 barrels per day in the medium term, given the current fragile nature of global oil markets. Meanwhile, the EIA trimmed its US oil production forecasts for 2019, pulling it down to 840,000 barrels per day from 1.02 million barrels per day previously. Oil demand next year is forecast to rise by just 250,000 barrels per day, leaving a bit of a supply overhang, from a US perspective.

 

Aussie retreats as consumer confidence drops

AUD/USD edged lower in quiet trading after consumer confidence, as measured by Westpac, fell 3.0% in September following a 2.3% drop last month. The pair is still hovering around the 0.71 mark having reached the measured objective of the triangle breakout on August 30.

 

AUD/USD Daily Chart

Source: Oanda fxTrade

Beige book to reinforce a strong economy?

Euro-zone industrial production is expected to continue its weak bias in July, expecting negative month-on-month growth for a second consecutive month, according to the latest survey. Forecasts suggest -0.5% m/m and +1.0% y/y. US producer prices for August dominate the US data docket, with estimates showing little or no acceleration from July’s numbers.

Crude oil stocks data from EIA could influence oil prices in the near-term if they confirm the drawdown on inventories displayed by API data last night. A speech from Fed’s Brainard (neutral, voter) is not expected to produce any significant headlines. The Fed’s Beige Book completes the day’s calendar and should generally confirm the robustness of the US economy.

 

The full MarketPulse data calendar can be viewed at: https://www.marketpulse.com/economic-events/

 

OANDA Market Beat – NAFTA Deal Close But Doubts Remain

Source: MarketPulse

U.S. Economy grew 4.1% rate in Q2

The U.S economy grew at the strongest pace in nearly four-years during Q2, supported by a rebound in consumer spending, exports and firm business investment.

Q2 GDP rose at a seasonally and inflation-adjusted annual rate of +4.1% – a pickup from Q1 growth rate of +2.2%. Compared to the second quarter a year ago, output grew 2.8%.

Note: Market expectations were looking for a +4.4% growth rate.

Today’s report again suggests that the Fed will continue to “gradually” raise short-term interest rates to prevent economic overheating.

The Fed is widely expected to leave its benchmark rate unchanged at its policy meeting next week (Aug. 1) and increase it by +25 bps in September to +2.25%.

Immediate reaction sees some pressure on the U.S dollar.

USD/CAD – Canadian dollar listless in light fundamentals session

The Canadian dollar has posted small gains in the Tuesday session. Currently, USD/CAD is trading at 1.3167, down 0.04% on the day. On the release front, there are no Canadian indicators on the schedule. The U.S will release services and manufacturing PMIs and the Richmond Manufacturing Index.

USD/CAD posted sharp losses on Friday, as the Canadian dollar posted strong gains of 1.0 percent. The currency received a welcome boost from May retail sales reports. Core Retail Sales jumped 1.4%, after failing to post gains for three straight months. This easily beat the forecast of 0.6%. Retail Sales rebounded 2.0%, above the forecast of 1.0%. This follows a decline of 1.2% in April. Consumer inflation in June remained pegged at 0.1%, matching the forecast. However, on an annualized basis, CPI rose 2.5%, its best showing since 2012.

After months of tit-for-tat tariffs and harsh rhetoric, will the EU and U.S patch up relations this week? The U.S slapped tariffs on EU steel and aluminum back in June, and the EU has since retaliated with tariffs on a range of U.S products. U.S President Trump has not shied away from harsh criticism about the EU, and a recent NATO summit exposed the frosty relations between Trump and EU leaders. Still, there could be better news ahead, as EU President Jean-Claude Juckner meets with President Trump on Wednesday. On Friday, Trump attacked the EU and China for manipulating their currencies and keeping interest rates lower. This has raised concerns that the current global trade tensions could be followed by a currency war. Growing concerns over the dangers of the ongoing trade war were summed up in the final communiqué from the G-20 meeting in Argentina over the weekend, which noted that “heightened trade and geopolitical tensions pose an increased risk to global growth”.

  Commodities Weekly: Copper hovers near one-year low on global growth uncertainty

  U.S dollar boosted by higher Treasury yields

USD/CAD Fundamentals

Tuesday (July 24)

  • 9:00 US HPI. Estimate 0.4%
  • 9:45 US Flash Manufacturing PMI. Estimate 55.1
  • 9:45 US Flash Services PMI. Estimate 56.5
  • 10:00 US Richmond Manufacturing Index. Estimate 18

Wednesday (July 25)

  • 10:00 US New Home Sales. Estimate 671K

*All release times are DST

*Key events are in bold

 

USD/CAD for Tuesday, July 24, 2018

USD/CAD, July 24 at 9:10 DST

Open: 1.3173 High: 1.3191 Low: 1.3142 Close: 1.3167

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.2970 13067 1.3160 1.3292 1.3436 1.3530

In the Asian session, USD/CAD ticked higher. The pair edged lower in European trade and is steady in North American trade

  • 1.3160 is fluid. Currently, it is a weak support line
  • 1.3292 is the next line of resistance
  • Current range: 1.3160 to 1.3292

Further levels in both directions:

  • Below: 1.3160, 1.3067, 1.2970 and 1.2831
  • Above: 1.3292, 1.3436 and 1.3530

Turkey’s central bank leaves policy rate unchanged, defying expectations

Turkey’s central bank left its policy rate unchanged on Tuesday, bucking market expectations of a hike and sending the lira down sharply in the bank’s first policy decision since President Tayyip Erdogan was re-elected with new executive powers.

Concerns about Erdogan’s influence over monetary policy – and about the bank’s ability to rein in inflation – have sparked the sell-off in the lira. Inflation hit its highest in 14 years in June, at 15.39 percent, as the weakening lira drove up food and other prices.

Investor concern about Erdogan’s influence over the central bank deepened after he appointed his son-in-law Berat Albayrak as finance minister. Over the weekend, Albayrak said he would not fight with the markets, comments that had helped boost expectations of a rate hike.

“Utterly mystifying,” said Paul McNamara, emerging markets investment director at GAM Investments in London. “Anything that undermines the lira is likely more dangerous than hikes.”

“While the (central bank) is nominally independent, it’s unlikely that this decision isn’t politically influenced. At the moment, the damage from higher yields and weaker lira is much worse than 125bps in rate hikes would have been.”

The lira TRYTOM=D3, which has lost some 20 percent of its value so far this year, weakened to 4.91 against the dollar following the decision, from 4.7605 directly before.

The bank left its one-week repo rate at 17.75 percent.Fifteen of 16 economists in a Reuters poll had forecast an increase, with an increase of 100-125 basis points considered the most likely option.

Only one economist had forecast that the bank would keep rates on hold.

“It’s a disappointing decision given that inflation accelerated further in June and is likely to rise even more in coming months as a result of the weaker lira,” said Piotr Matys, emerging markets forex strategist at Rabobank.

“This is a surprising decision that re-ignited the selling pressure on the lira.”

The central bank has raised rates by 500 basis points since late April in an effort to put a floor under the currency. Erdogan, who wants to see lower borrowing costs to spur lending and new construction, has described himself as an “enemy of interest rates”.

Investors keep a close eye on the direction of economic policy as Turkey’s widening current account deficit and double- digit inflation have increased concern the economy is overheating and could be headed for a hard landing.

Reuters

Trump ready to put tariffs on all Chinese imported goods

President Donald Trump has indicated that he is willing to slap tariffs on every Chinese good imported to the U.S. should the need arise.

“I’m ready to go to 500,” the president told CNBC’s Joe Kernen in a “Squawk Box” interview.

The reference is to the dollar amount of Chinese imports the U.S. accepted in 2017 — $505.5 billion to be exact, compared to the $129.9 billion the U.S. exported to China, according to Census Bureau data.

Thus far in the burgeoning trade war, the U.S. has slapped tariffs on just $34 billion of Chinese products, which China met with retaliatory duties.

By sheer dollar volume, the Chinese won’t be able to come close to the U.S. in a tit-for-tat battle. Trump’s comments point to a willingness to push the envelope as far as the U.S. needs to get Chinese tariff concessions, along with a pledge to stop stealing American technology.

“I’m not doing this for politics, I’m doing this to do the right thing for our country,” Trump said. “We have been ripped off by China for a long time.”

Trump said the U.S. is “being taken advantage of” on a number of fronts, including trade and monetary policy. Yet he said he has not pushed the tariffs out of any ill will towards China.

“I don’t want them to be scared. I want them to do well,” he said. “I really like President Xi a lot, but it was very unfair.”

Trump also said he was told by unspecified Chinese officials that “nobody would ever complain” from past administrations “until you came along — me. They said, ‘Now you’re more than complaining. We don’t like what you’re doing.’”

“You do not want to give Jeff Bezos a seven-year head start.”
Hear what else Buffett has to say

CNBC

Currencies, Stocks and Bonds await Fed Powell’s Testimony

Tuesday July 17: Five things the markets are talking about

Corporate earnings and monetary policy is expected to be the main driver of market sentiment this week- it’s currently giving a ‘temporary’ break to trade relation tensions amongst G7 economies.

Global equities have drifted lower overnight on mixed earnings, while capital markets await the latest clues on U.S monetary policy.

Today’s focus will be on new Fed chair Jerome Powell’s first testimony before the Senate Banking Committee, where he is expected to give further clues on how fast the Fed is likely to keep pushing U.S interest rates higher. His prepared remarks may ‘not’ be too hawkish, but keep an eye on his Q & A session.

Note: Futures prices are currently pricing in a +62% probability that U.S rates will rise at least twice more this year.

Elsewhere, U.S Treasuries prices continue to slip along with the ‘big’ the dollar and crude oil prices.

1. Stocks mixed results

In Japan, the Nikkei share average rallied to a one-month high overnight as a weak yen (¥112.36) lifted exporters, offsetting weakness in machinery stocks after data showed China’s growth momentum cooling a tad. The Nikkei ended up +0.4%, the highest closing level since mid-June, while the broader Topix advanced +0.9%.

Note: Japanese markets reopened after a three-day weekend due to a national holiday yesterday.

Down-under, Aussie and S. Korean shares fell earlier this morning, as an overnight slump in oil prices and weaker commodities hurt domestic energy and mining stocks. Following Monday’s decline of -0.4%, the S&P/ASX 200 index fell -0.6% at the close of trade, while in S. Korea, the Kospi lost -0.18%.

In Hong Kong and China, same story, equities ended lower overnight, dragged by energy firms following a sharp decline in crude oil prices. The Hang Seng index fell -1.3%, while the China Enterprises Index lost -1.1%. In Shanghai, the blue-chip CSI300 index closed -0.7% down, while the Shanghai Composite Index ended -0.6% lower.

In Europe, regional bourses have opened lower and currently trade sideways. The financial sector remains the best performer in muted volatility, while the tech sector underperforms.

U.S stocks are set to open unchanged.

Indices: Stoxx50 -0.2% at 3,446, FTSE +0.1% at 7,608, DAX flat at 12,562, CAC-40 flat at 5,412; IBEX-35 flat at 9,714, FTSE MIB +0.4% at 21,906, SMI -0.4% at 8,812, S&P 500 Futures flat

2. Oil prices fall again on oversupply concerns, gold higher

Oil prices remain under pressure as market worries about possible disruptions to supply eased and as investors focused on potential damage to global growth from the Sino-U.S trade squabble.

Brent crude futures have fallen -32c, or -0.5%, to +$71.52 a barrel – the lowest price since mid-April. Prices fell -4.6% yesterday. U.S West Texas Intermediate futures are down -31c, or -0.5%, at +$67.75 a barrel – it too declined -4.2% on Monday.

Note: market volumes at current levels remains poor, which is expected to lead to further slippage.

China this morning said they remain confident of hitting its economic growth target of around +6.5% this year despite market expectations of facing a tough H2 as a trade row with the U.S intensifies.

Note: On Sunday, China reported slightly slower growth for Q2 and the weakest expansion in factory activity in June in two-years.

Crude supply currently is not a market issue. Along with the Saudi’s surge in production, U.S oil output from seven major shale formations is expected to rise by +143K bpd to a record +7.47M bpd next month, according the EIA’s report on Monday.

Ahead of the U.S open, gold prices have edged a tad higher as the ‘big’ dollar remains on the back foot ahead of U.S. Fed Chair Jerome Powell’s first congressional testimony. Spot gold is up +0.25% at +$1,243.18 an ounce. U.S gold futures for August delivery are up +0.3% at +$1,243.20 an ounce.

3. Yields little changed ahead of Powell’s testimony

Trading in government bonds remains subdued ahead of Fed Chair Powell’s testimony (10:00 am EDT).

Eurozone government bond yields have inched lower by -0.5 to -2 bps, with the market naturally unwilling to push yields any higher before Powell’s Q & A in a few hours.

Yesterday, the U.S two-year yield edged to a new multi-year high above +2.60% – it has been struggling at this rate for the past two-months.

Note: Current futures prices suggest there is nearly a +90% chance discounted in the Fed funds futures strip of a September rate hike and that there is about a +60% chance of a December hike, which would take the Fed fund target to 2.25-2.50%. If true, that would seem to make the two-year yield still relatively low if one expects at least one hike next year and no cut in 2019.

Elsewhere, the yield on U.S 10-year notes advanced less than +1 bps to +2.86%, the highest in more than two-weeks. In Germany, the 10-year Bund yield fell -1 bps to +0.35%, while in the U.K, the 10-year Gilt yield decreased -1 bps to +1.27%, the lowest in more than a week.

4. Cable drifts higher after jobs data

This morning’s U.K labor data in line with market expectations has sent the pound a tad higher. GBP/USD has rallied to £1.3263, up +0.2% on the day, while EUR/GBP has fallen to €0.8847.

Digging deeper, earnings growth ex-bonuses for the three months to June was +2.7% – it’s smaller than the +2.8% in the previous period. The unemployment rate also stayed flat at +4.2%, as expected.

Note: Market consensus does not expect this morning print to change expectations of an interest rate increase in August – currently; futures suggest there is a more than +70% chance of a rate rise in three weeks.

Elsewhere, down-under, NZD (NZ$0.6830) managed to rally aggressively overnight, the most in six-weeks following the RBNZ’s sectorial factor model inflation gauge surging to the highest level in seven years.

5. RBA flags rising trade war risks in meeting minutes

In its July minutes overnight, the Reserve Bank of Australia (RBA) said that downside risks to the global growth outlook increased in June amid rising tensions over trade between the worlds two largest economies.

Board members remain concerned that trade tensions extended beyond the U.S and China and “could escalate through non-tariff measures such as administrative delays,” adding that “escalation of trade tensions could harm global growth by undermining confidence and delaying investment decisions and could dampen international trade.”

They said that while heightened international trade worries had already weighed on global equity prices, as well as on some long-term government bonds and base metal prices, the bank still forecast Australia’s economic growth to “pick up to be a bit above +3% over 2018 and 2019”.

Forex heatmap

DAX subdued on lack of fundamentals

The DAX index has ticked lower in the Tuesday session. Currently, the DAX is at 12,566, up 0.05% on the day. On the release front, there are no major German or eurozone events. In economic news, the eurozone trade surplus slipped to EUR 16.9 billion, short of the estimate of EUR 17.6 billion. This marked the lowest surplus since January 2017.

European equity markets showed little change last week and the DAX continues to trade quietly on Monday. Still, the trading tensions hovering in the air have many investors wondering if this is the calm before the storm. On Tuesday, the Trump administration said it was considering imposing tariffs on some $200 billion in Chinese goods, which would be a significant escalation in the trade war between the two economic giants. China has promised to respond with “firm and forceful measures”, but hasn’t provided any details. With neither side showing any flexibility, the markets could be heading for stormy waters if China retaliates.

Trade policy is not part of the Federal Reserve’s mandate, but Fed policymakers continue to voice concern about the escalating trade war between the U.S and its major trading partners, particularly China. On Friday, Dallas Fed President Robert Kaplan said he would have to downgrade his outlook if the tariff battle continues. Kaplan said that U.S tariffs on steel and aluminum imports had dampened capital expenditures plans and further trade tensions could lead to currency fluctuations and geopolitical instability.

 

Economic Calendar

Tuesday (July 17)

  • There are no German or eurozone indicators

Wednesday (July 18)

  • 5:00 Eurozone Final CPI. Estimate 2.0%
  • 5:00 Eurozone Final Core CPI. Estimate 1.0%
  • Tentative – German 30-year Bond Auction

*All release times are DST

*Key events are in bold

 

DAX, Monday, July 17 at 6:50 DST

Previous Close: 12,561 Open: 12,555 Low: 12,521 High: 12,594 Close: 12,566

EUR/USD – Euro edges higher, investors eye Powell testimony

EUR/USD has posted gains in the Tuesday session. Currently, the pair is trading at 1.1733, up 0.18% on the day. In economic news, there are no events in the eurozone. The U.S releases manufacturing and housing indicators. Federal Reserve Chair Jerome Powell testifies before the Senate Banking Committee. On Wednesday, the Eurozone releases Final CPI and the U.S publishes building permits and housing starts. Fed Chair Jerome Powell testifies before the House Financial Services Committee.

After a sluggish first quarter, U.S  retail sales reports have rebounded in the second quarter. Core retail sales were revised upwards to 0.8% in May, and the June gain of 0.5% edged above the forecast of 0.4%. Retail sales gained 0.4%, and were up an impressive 6.6% on an annualized basis. Consumer spending is a key driver of economic growth, and a tight labor markets and firming inflation are further indications that the economy is in excellent shape. The Fed is widely expected to raise rates again at the September meeting, with odds of a quarter-point hike at 87%, according to the CME Group.

The escalating trade war between the U.S and China is raising concerns not just on the equity markets but at the Federal Reserve as well. On Friday, Dallas Fed President Robert Kaplan said he would have to downgrade his economic outlook for the economy if the tariff battle continues. Kaplan said that U.S tariffs on steel and aluminum imports had dampened capital expenditures plans and further trade tensions could lead to currency fluctuations and geopolitical instability. With Fed policymakers split on whether to raise rates once or twice in the second half of 2018, the outcome of the tariff battle could have a significant impact on the monetary policy and on the direction of the U.S dollar.

  Commodities Weekly: Oil tumbles on supply/demand dynamics

Monday blues or Dog days of summer

 

EUR/USD Fundamentals

Tuesday (July 17)

  • 9:15 US Capacity Utilization Rate. Estimate 78.4%
  • 9:15 US Industrial Production. Estimate 0.5%
  • 10:00 US Federal Reserve Jerome Powell Testifies
  • 10:00 US NAHB Housing Market Index. Estimate 69
  • 16:00 US TIC Long-Term Purchases. Estimate 34.3B

Wednesday (July 18)

  • 5:00 Eurozone Final CPI. Estimate 2.0%
  • 5:00 Eurozone Final Core CPI. Estimate 1.0%
  • Tentative – German 30-year Bond Auction
  • 8:30 US Building Permits. Estimate 1.33M
  • 8:30 US Housing Starts.  Estimate 1.32M
  • 10:00 US Federal Reserve Jerome Powell Testifies
  • 10:30 US Crude Oil Inventories
  • 14:00 US Beige Book

*All release times are DST

*Key events are in bold

 

EUR/USD for Tuesday, July 17, 2018

EUR/USD for July 17 at 5:35 DST

Open: 1.1712 High: 1.1737 Low: 1.1702 Close: 1.1733

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1553 1.1637 1.1728 1.1829 1.1910 1.1996

EUR/USD ticked higher in the Asian session and is has posted small gains in European trade

  • 1.1728 has switched to a support role following gains by EUR/USD on Tuesday
  • 1.1829 is the next resistance line

Further levels in both directions:

  • Below: 1.1728, 1.1637, 1.1553 and 1.1434
  • Above: 1.1829, 1.1910 and 1.1996
  • Current range: 1.1728 to 1.1829

GBP/JPY – Bearish Breakout Ahead of Jobs Data and BoE

OANDA Senior Market Analyst Craig Erlam talks to Core Finance about the recent bearish break in GBPJPY and whether it signals more pain ahead. He also previews the UK jobs data and Bank of England inflation report hearing and what they could mean for interest rates this year.

USD/JPY – Japanese Yen Edges Lower as Japanese Manufacturing PMI Dips

BoE Hearing and Fed Minutes in Focus

DAX Under Pressure, Investors Eye Fed Minutes