We are seeing some excessive volatility in early Asian trade and markets are currently volatile in a very illiquid time zone, particularly stock futures, which have fallen by another 1.5%, after the US has officially labelled China a “currency manipulator”. US$Jpy has already taken out the US session low, and currently sits at 105.50, while Gold has made new highs. Be very nimble today!
Stocks have taken a beating at the start of the week with the US indices down by 3%, Gold up by 1.5%, the DXY 0.5% lower and US 10Y yields now down at 1.7% as financial markets buckled after China escalated the trade war with the U.S. The moves started earlier in Asia, when China allowed the CNY to head above 7.00, and UsdCnh has soared to currently trade at 7.10. On the other side of the coin, the Jpy rallied strongly as safe haven demand surged. WTI was choppy, ending down by around 0.6%.
The move by the Chinese authorities to allow the CNY to weaken through 7.00, previously very strongly protected by the PBOC, could now be the harbinger for an increase in volatility in the currency markets as the world moves towards a currency war, piling further pressure on world markets.
In terms of the US$, the DXY fell to 97.40 on the back of some US weak services data, with the ISM non-Mfg index down to 53.7, below expectations of 55.5, and suggests that, coupled the escalation in the trade war between the US/ China, the Fed may need to cut interest rates again next month to sustain any economic expansion.
Tuesday will begin with the Q2 NZ Unemployment and RBNZ Inflation Expectations as we head towards the RBNZ meeting on Wednesday. The main event of the day will be the RBA Meeting, although ahead of the RBA, the June Trade Balance will be released (exp +$6.0 bio). RBA Policy is expected to remain unchanged this month and the interest will lie in the statement, with the focus to be on what the Bank has to say in its outlook, particularly in light of the developments seen on Monday. No Press Conference is scheduled but the RBA Governor is scheduled to testify before the Senate Finance Committee on Thursday, and then on Friday the RBA’s quarterly Monetary Policy Statement will be released. Later in the coming session it becomes rather thin, with just the German, June Factory Orders (exp 0.4%mm) and the Global Dairy Trade Index due in the EU time zone, and then the API Weekly Crude Oil Stock Inventory and a speech from the Fed’s Bullard due in the US session. All eyes will be trade war developments and the data, RBA aside, will take second place today.
Economic data highlights will include:
Tue: NZ Unemployment, RBNZ Inflation Expectations, Australian Trade Balance, RBA Interest Rate Decision/Statement, German Factory Orders, US Fed Bullard Speech, Global Dairy Trade Index, API Weekly Crude Oil Stock Inventory
Market moves, in brief:
FX: DXY 97.40 (-0.55%)
Bonds: US10Y; 1.715% (-6.91%), German 10Y; -0.513% (-4.93%), UK 10Y; 0.504% (-8.93%), Australian 10Y; 1.020% (-7.15%), NZ 10Y; 1.315% (-4.01 %), China 10Y; 3.13% (+0.98%)
Stock Indices: At US close: DJI; -2.90%, S+P; -2.98%, NASDAQ; -3.47%, EUStoxx50; -1.93%, FTSE100; -2.47%, Shanghai Composite; -1.58%,
Metals: Gold $1471 oz (+1.59%), Silver $16.46 oz (+1.28%), Copper $2.544 lb (-1.07%), Iron Ore $100.34 per tonne (NYMEX) (-5.8%),
Oil: WTI $54.85 pb (-0.65%)
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