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

Live FX Market Analysis – 10 July 2018 (Video)

In this week’s webinar, Senior Market Analyst Craig Erlam discussed the latest Brexit developments as two members of her team resign after an apparently united and productive meeting on Friday. He also talks Trump, after the latest imposition of trade tariffs and ahead of his trip to the UK and the NATO summit, and previews the week ahead.

Craig also gives his live analysis on EURUSD (12:20), GBPUSD (15:03), EURGBP (17:50), AUDUSD (19:35), USDCAD (24:12), GBPCAD (26:19), NZDUSD (28:31), USDJPY (30:22), GBPJPY (32:25) and EURJPY (34:52).

GBP/USD – British pound steady on modest GDP growth

USD/JPY – Japanese yen dips to 7-week low, inflation reports next

Commodities Weekly: Gold saved by dollar’s retracement

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

BoE Hearing and Fed Minutes in Focus

US Futures Continue to Pare Last Week’s Gains

US equity markets are expected to open in the red again on Wednesday, tracking losses in Europe as stocks continue to pare last week’s strong rebound.

It’s been a relatively quiet start to the morning and the week, with the bank holiday in the US and Canada contributing to this. The European session has been dominated by economic data releases so far and that’s likely to continue, with flash manufacturing and services data due from the US shortly after the open. It’s the FOMC minutes that will be released later in the day though that will likely be the standout event from a US perspective, particularly as the statement caused quite a stir at the end of January.

US Yield Curve Now (Orange) and on 29 January 2018 (Purple)

Source – Thomson Reuters Eikon

The sell-off in the markets may have come a couple of days later but part of the initial trigger was a more hawkish sounding Fed, with the jobs report then being the straw that broke the camel’s back two days later. While the minutes may not generate quite the same response, traders will likely monitor what they say very closely for signs that policy makers are now leaning more towards three to four rate hikes this year, rather than two or three.

EUR/USD – Euro Ticks Lower as German Manufacturing PMI Softens

GBP Slips as Unemployment Ticks Higher

Sterling is coming under a bit of pressure this morning after UK jobs data for the three months to December showed wages still growing at a moderate pace and unemployment ticking up to 4.4%. While a higher reading on wage growth may have triggered a more bullish response from the pound, the data turned out to be quite insignificant as it’s unlikely to change the views at the Bank of England.

UK Unemployment Rate

Wages have been slowly ticking higher recently and they could continue to do so as workers demand more due to the higher cost of living and a tight labour market. The move higher in the unemployment rate won’t be a concern at this moment with it potentially being a one-off move and still very low. As long as inflation remains at upper range of what is deemed acceptable, the central bank seems intent on raising rates at least once more this year, despite the temporary factors driving it and economic uncertainty that lies ahead.

Yield-o-Mania

BoE Inflation Report Hearing Eyed as Markets Price in Rate Hikes

Members of the Monetary Policy Committee including Governor Mark Carney will appear before the Treasury Select Committee later on today, during which they will be questioned on their latest inflation report forecasts and expectations for interest rates going forward. While it’s always interesting to get the views of policy makers and the pound will likely be volatile throughout, I wonder how much of what they have to say will now already be priced in, with at least one rate hike now expected this year.

GBPUSD Daily Chart

OANDA fxTrade Advanced Charting Platform

With that in mind and with Brexit transition negotiations likely to dominate the next month, we could see the pound lose some of the momentum that’s been gathering over the last six months or so. It’s recent failed to make new highs on two occasions against the dollar and it’s also slipping against the yen in a possible sign that traders are beginning to lock in profits ahead of what could be a difficult month.

Economic Calendar

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

FX Market Analysis – 20 February 2018 (Video)

Senior Market Analyst Craig Erlam discusses this week’s key event risks, with the most notable being the UK jobs report and BoE inflation report hearing.

Craig also gives his live analysis on EURUSD (11:04), GBPUSD (15:13), EURGBP (17:04), AUDUSD (18:36), USDCAD (20:02), GBPCAD (22:01), NZDUSD (24:47), USDJPY (25:44), GBPJPY (26:47) and EURJPY (28:24).

USD/JPY – Dollar Punches Above 107 Yen, Fed Minutes Ahead

Higher Yields Pushing Dollar Up

Intermezzo

Weekly FX Market Update – 6 February 2018 (Video)

It’s been an extremely turbulent 24 hours in the financial market with the Dow recording its largest ever daily points drop as panic set in and traders tried to work out what was triggering such a strong sell-off. Markets have stabilized a little on Tuesday but there remains some concern among traders which continues to weigh.

Senior Market Analyst Craig Erlam talks about what he thinks has triggered such a move and goes through this week’s other key events in the markets.

He also gives his live analysis on EURUSD (18:08), GBPUSD (20:02), EURGBP (22:12), AUDUSD (23:32), USDCAD (25:10), GBPCAD (27:16), NZDUSD (28:54), USDJPY (30:58), GBPJPY (32:53) and EURJPY (34:12).

DAX Recovers After Falling to 5-Month Low

Beware: FX Space is Calm, But Appearances Can Be Deceiving

Plop Plop Fizz Fizz Oh What a Relief it is