Summary: Ongoing tensions between the US and China after an announcement late in the NY session that President Trump would hold a news conference today pertaining to latest developments surrounding Hong Kong and America’s relationship with China. The relationship between the globe’s two largest economies deteriorated further after China approved a new law that would reduce Hong Kong’s autonomy significantly. Risk appetite, already wavering for most of the day, soured. Wall Street stocks dropped, reversing earlier gains. The US Dollar rebounded off its lows against its rivals after falling overnight. Risk leading barometer, the Australian Dollar eased to 0.6623 from its NY close of 0.6635. The Euro took out the 1.1050 resistance level, climbing to 1.10936 overnight and near 2-month high before easing to 1.1077 (1.1007). Yesterday’s EC massive stimulus plan for Europe continued to boost the shared currency. Sterling rebounded to 1.2323 from 1.2262 yesterday buoyed by the US Dollar’s weakness. The USD/CAD pair was little changed at 1.3775 (1.3765) despite a modest bounce in Oil prices. Against the haven Yen, the Dollar dipped to 107.65 from 107.77. USD/CNH (Dollar-Offshore Chinese Yuan) finished little-changed at 7.1710 from 7.1800 yesterday. The Dow reversed earlier gains to finish 0.6% lower at 25,401. (25,597). The S&P 500 was at 3,030 from 3,045, a loss of 0.2%. Global bond yields were mostly flat.
Data released yesterday saw Australia’s Private Capital Expenditure better forecasts at -1.6% against -2.6%. Germany’s Preliminary CPI fell to -0.1% from 0.4%, and expectations of 0.1%. Canada’s Current Account fell to -CAD11.1 billion from the previous month’s -CAD8.8 billion. US Headline Durable Goods Orders beat expectations of -19.0%, printing at -17.2%. Core Durable Goods Orders were also better at -7.4% against expectations of -14.8%. US Weekly Unemployment Claims were slightly higher at 2.213 million than median forecasts at 2.1 million. US Preliminary Q1 GDP fell to -5.0% missing forecasts at -4.8%.
On the Lookout: Risk sentiment remained fragile into early Asia with markets awaiting President Trump’s press conference on China at some stage today. Meantime expect the US Dollar to consolidate at these lower levels, more likely grinding higher. Events scheduled for today come in toward the close of US markets today. President Trump will hold a news conference in New York city, his first since July. Fed Chair Jerome Powell will participate in a virtual panel discussion at Princeton University’s Griswold Centre for Economic Policy Studies in New Jersey.
Today sees a data deluge amidst the simmering US-China tensions. Japan kicks off with a plethora of reports, Tokyo Core CPI, Japanese Unemployment Rate (April), April Retail Trade, Preliminary Industrial Production, Consumer Confidence, Housing Starts and Construction Orders. Australia follows with its April Private Sector Credit data. Euro area reports start with Germany’s April Retail Sales (m/m and y/y) and Import Prices. France reports its Q1 GDP, Consumer Spending (April), Producer Prices, and May Preliminary CPI. Italy reports on its Q1 GDP and Preliminary CPI (May). Switzerland follows with its KOF Leading Indicator (May). The Eurozone releases its Preliminary May CPI. The US releases its Core Personal Consumption Expenditure Price Index (April), Personal Income, Chicago Purchasing Manager’s Index, and Michigan Consumer Sentiment Index (May). Finally, Canada releases its Q1 GDP, April Industrial Production, March GDP (m/m), and Raw Material Price Index.
Trading Perspective: The battle for risk appetite and the US Dollar will continue to play out between escalating US-China tensions and hopes for the reopening of the world’s economies on easing restrictions from the coronavirus outbreak. Until then risk-off themes will be in play.
The Dollar Index (USD/DXY) fell 0.6% to 98.467 (98.963 yesterday), mainly on the back of the resurgent Euro. The shared currency faces a test today with the economic data releases from Germany, France, Italy and the Eurozone. Germany’s Retail Sales, Italy’s Q1 GDP and the Eurozone’s Preliminary CPI (May) will be closely monitored. We can expect fireworks for the last trading day in May. Happy days !