Stocks and oil soared on Wednesday, while the US$ was mixed, higher against the majors but lower against the commodity currencies after Donald Trump’s administration offered China a reprieve from the sweeping tariffs that were poised to commence on September 1st, reviving hopes of further talks on a trade deal. A US trade representative said the new tariffs on many major categories of items, including smart-phones, laptop computers and toys, would be delayed until December 15th. The announcement saw Apple (+4.23%) lead the way higher, taking the major indices up by 1.5%/2.0%, while WTI was up by 3.8%. On the other side of the coin, the metals took a bit of a hit, with Gold/Silver both down by around 0.75%.
Note that while US bond yields headed a little higher on Tuesday with the US10Y settled at 1.704%, German 10Y yields fell to an all time low of -0.620%, currently leaving the spread between the two at 2.32%. While the spread has backed off from its recent high of 2.8%, it will not help the Euro if it begins to blow out again.
In terms of data, the US July CPI rose more than markets had anticipated (headline; 0.3%mm, 1.8%yy, (exp 0.3%, 1.7%); with the Core at 2.2%yy, (exp 2.1%)) and helped to underpin the US$ during the session. Earlier, the German ZEW Economic Sentiment dropped to -44.1 in August, down from -24.5, missing expectations of -28.0, making it the lowest level since December 2011. The Current Situation Index dropped to -13.5, down from -1.1 and missed expectation of -5.9. The comments attached to the report said that “Economic Sentiment points to a significant deterioration in the outlook for the German economy. The escalation in the trade dispute between the US and China, the risk of competitive devaluations and the increased likelihood of a no-deal Brexit combine to place additional pressure on the already weak economic growth and will most likely put a further strain on the development of German exports and industrial production.” The EU Economic Sentiment dropped to -43.6, down from -20.3, missing expectations of -21.7, while the EU Current Situation dropped -3.9 pts to -14.5. All up, not a pretty picture for the Euro.
Looking ahead, Wednesday will be another busy one, led by the China July China Retail Sales (exp 8.6%yy), Industrial Production (exp 5.8%yy), Fixed Asset Investment (exp 5.8%yy) and the NBS Press Conference, while Asia will also see the August Australian WBC Consumer Confidence, the Q2 Wage Price Index (exp 0.5%qq, 2.3%yy) and then, in European hours, a speech from the RBA’s Debelle. From the EU comes the German Preliminary Q2 GDP (exp -0.1%, -0.3%yy), the EU Preliminary Q2 GDP (exp +0.2%, +1.1yy), and the EU June Industrial Production (exp -1.3%mm, 1.2%yy). From the UK we get the July CPI, PPI, RPI (CPI, exp -0.1%mm, +1.9%yy), while the US will be thin, with just the Import/Export Index on the agenda along with the EIA Crude Oil Stocks Weekly Change.
Economic data highlights will include:
Wed: Japan Machinery Orders, Australian Wage Price Index, WBC Consumer Confidence , China Retail Sales, Industrial Production, Fixed Asset Investment, NBS Press Conference, UK CPI, PPI, RPI, EU/German Preliminary Q2 GDP, EU Industrial Production US Import/Export Index, EIA Crude Oil Stocks Weekly Change
Market moves, in brief:
FX: DXY 97.85 (+0.47%)
Bonds: US10Y; 1.704% (+3.13%), German 10Y; -00.610% (-2.71%), UK 10Y; +0.489% (+0.18%), Australian 10Y; 0.94% (-3.41%), NZ 10Y; 1.080% (-1.82 %), China 10Y; 3.073% (+2.05%)
Stock Indices: DJI; +1.48%, S+P; +1.50%, NASDAQ; +1.95%, EUStoxx50; +0.92%, FTSE100; +0.33%, Shanghai Composite; -0.63%,
Metals: Gold $1500 oz (-0.73%), Silver $16.95 oz (-0.65%), Copper $2.632 lb (+1.82%), Iron Ore $95.11 per tonne (NYMEX) (+0.11%),
Oil: WTI $56.66 pb (+3.56%)
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