Summary: Tensions between the US and China heightened after the Trump administration tightened control on the use of its technology by Huawei which threatened “phase one” of a trade deal agreed between the two countries. The US Senate also passed a bill that could see some Chinese companies delisted from US exchanges. China warned that it would safeguard its sovereignty and interests, threatening countermeasures. US President Trump said that his country would react strongly if China imposes national security laws for Hongkong in response to last year’s pro-democracy protests. Risk currencies slid, led by the Australian Dollar, down 0.40% to 0.6567 (0.6600). The Kiwi (New Zealand Dollar) fell 0.44% to 0.6125 (0.6150 yesterday). The Euro retreated 0.3% to 1.0947 after hitting a peak at 1.10083 despite an overall improvement in Euro area Manufacturing and Service PMI’s and a weaker US Jobless Claims report. Against the Japanese Yen, the Dollar was little changed at 107.60 (107.58) ahead of today’s Bank of Japan interest rate policy meeting and announcement. The Dollar rebounded against the Canadian Loonie to 1.3955 from 1.3907. Wall Street stocks eased on the souring of risk appetite. In late New York, the DOW was down 0.68% to 24,438 (24,615). The S&P 500 lost 1.14% to 2,943 from 2,977 yesterday. Global bond yields were mostly lower. The benchmark 10-year US treasury yield closed at 0.67% (0.68%). Germany’s 10-year Bund yield was three basis points lower to -0.50%.
Data released yesterday saw French and Eurozone Manufacturing PMI’s beat forecasts at 40.3 (26.0) and 39.5 (38.0) respectively. Germany, however missed expectations with its Manufacturing PMI down to 36.8 from 39.3. Euro area Services PMI’s were all better than expected. UK Manufacturing and Services PMI’s also beat expectations, at 40.6 (35.1) and 27.8 (24.1) respectively. US Flash Manufacturing PMI rose to 39.8 from the previous 36.1, bettering forecasts at 37.5. Services PMI rose to 36.9 in April from 26.7 in March, beating expectations of 32.6. US Philadelphia Manufacturing PMI rose to -43.1 in April from the previous month’s -56.6, missing forecasts at -40.0.
On the Lookout: Another case of risk-on, risk-off yet again as trade tensions mount between the US and China. There is no doubt that US President Trump is increasing his criticism of the Chinese Communist Party leadership as he faces a re-election challenge later this year. Which could derail any economic global recovery already reeling from the coronavirus outbreak even as lockdown restrictions are eased and businesses restart. Traders will continue to monitor those developments.
Today’s economic calendar saw New Zealand’s Q1 GDP, just released dip to -0.7% from a downward revised Q4 GDP of 0.0% (from 0.7%), but better than forecasts at -1.5%. NZD/USD stayed flat at 0.6125.
Japan reports on its National Headline and Core CPI data. The Bank of Japan is expected to keep its Policy rate unchanged at -0.10% at the conclusion of its emergency meeting today. Traders will focus on BOJ President Kuroda’s press conference following the meeting (later this afternoon, Sydney time). Europe sees the release of the ECB’s Monetary Policy Meeting Accounts. UK Headline and Core Retail Sales for May and Public Sector Net Borrowing reports follow. Canada’s Headline and Core Retail Sales round up the day’s reports.
Trading Perspective: FX still finds itself trading within ranges with the excitement of any break outs contained so far. No one really knows what the catalyst will be for any break in direction. Until then, the recent established trading ranges are intact. The rising tensions that are threatening “phase one” of the China-US trade deal reached early this year will continue to support the safe-haven Greenback.