FX News Today
FX Update: Forex and stock markets are taking the as-expected news of Trump’s trade war escalation in their stride. The tariffs will start at 10% from next Monday before rising to 25% on January 1. Trump has also threatened to tariff the remaining $267 bln worth of Chinese imports into the U.S. if Beijing retaliates, which looks likely to be the case. USDJPY dipped to a low of 111.66, the lowest level seen since last Thursday, before recouping to the 112.00 level, putting the pair at net firmer levels on the day. Even the AUDJPY cross, which has proven to be sensitive to worsening Sino-US trade war, rebounded out of a three-session low to net higher levels on the day.
Asian Market Wrap: 10-year Treasury yields are up 0.7 bp at 2.994%, after pulling back from levels above 3% yesterday. 10-year JGB yields are down -0.1 bp at 0.107% after coming back from yesterday’s holiday. Japanese markets rallied in catch up trade and Topix and Nikkei gained 1.90% and 1.63% respectively. The Hang Seng meanwhile is down -0.76%, and while Chinese equities initially seemed to shrug off the confirmation of additional Trump tariffs worth USD 200 bln, but have now pared early gains and are little changed – the Hang Seng up 0.01%, the Shanghai Comp down -0.04%. The PBOC’s alarm levels are clearly ringing louder and the bank has injected 200 bln yuan with reverse repos today, on top of MLF operations that added 265 bln of new one year loans. Bloomberg highlighted looming challenges in the form of quarter end cash demand, and huge maturities in Q4 for MFL loans and corporate debt. At the same time, some feel that after the sharp correction in Chinese equities and with mid-term elections looming for Trump, a sustained recovery for Chinese stocks may be on the horizon, especially since markets do not appear to have priced in much of a risk-fallout for US equities. US stock futures are heading south today and oil prices are down with the front end Nymex future trading at USD 68.54 per barrel.
Charts of the Day
Main Macro Events Today
- Japan Merchandise Trade Balance – Expectations – This important figure for the Japanese economy usually has a large impact on the currency. August’s trade balance is expected to deteriorate to YEN-468Bln, compared to YEN-231.9Bln in July, despite an expected increase in exports.
- Canadian Manufacturing Sales – Expectations – Sales in Canada are expected to have slowed to 1.0% MoM in July, from 1.1% in June.