Don’t’ just blame China

The equity markets managed to recover off their lows on Friday after both the US and China

attempted to spin some positivity into the failure of the US/China trade talks. Laughable of

course given the outcome and imposition of fresh trade tariffs by the US, but at least both

sides are still talking I suppose. Trouble is neither side seem to be listening much to the

other.

Anyway those comments were certainly enough to spark around a 2% rebound in the main

US equity bourses and push the VIX (volatility index) back down to around 16, where it

closed the week. However, it doesn’t look like the Asian markets are buying into such

phoney rhetoric with losses across the board this morning (excluding Hong Kong which is

closed today) and that’s helped the JPY remain firm and keep pressure on the commodity

currencies.

The USDJPY did briefly dip below 109.50 again on Friday, but owing to the rebound in the

equity space it unsurprisingly also bounced, to close last week at 109.95. The price has

drifted lower again overnight which is entirely consistent with the moves in Asian equity

markets today. From a purely technical perspective there is something of an interim double

bottom in place now around that 109.50 level and hence this looks like a point of some

immediate importance again this week.

Meanwhile, the EUR and the GBP continued to do what they do best lately, which is to

travel sideways and the GBPUSD in particular continues to look highly pivotal around that

1.30 level, as it waits to see what happens next on the Brexit front- don’t hold your breath

though folks!

So, with the EUR and GBP going largely nowhere still the USD index is pretty much doing the same inside an immediate range of 97.10-98.40. In fact, looking more closely at at this one we have a similar interim double bottom to that seen on the USD versus the JPY. That

comes in now at 97.15. As I write here this morning the price is a little north of that,

currently around 97.35.

Given all that transpired last week and what may further unfold this week, the currency

that’s rather unsurprisingly attracting the most attention is the Chinese Yuan. The USDCNY

has pushed higher again overnight as it moves past 6.85. The US authorities have made it

pretty clear they won’t be happy to see the dollar rise past 7.0, but then again its all well

and good them moaning about that, but it's an entirely different matter stopping it happen.

I said last week that it was rather obvious to me that this was being entirely contrived by

PBOC, or at the very least they were turning a blind eye to the CNY weakening. Now of

course the daftest thing in all of this; is that tariffs will almost certainly hurt the US more

than they will the Chinese exporter as it will ultimately be the US consumer that ends up

paying for them- unless of course they all ‘Buy American’.

Naturally that’s the president’s wish anyway, but even if that were to happen it will take a

long, long time to kick in, if it ever does. Meantime, I’m sure the Chinese won’t care less if

their currency helps take up the slack.

Granted the US do have a point about unfair Chinese trade practises, but besides that, what

about all those US firms that have played and gained by the great ‘Chinese arbitrage’? They

are surely equally to blame? For that matter, so are many UK firms too, who have also

profited hugely by the same policy of outsourcing production to China- that’s globalization

for you!

Here’s an interesting exercise for you if you have nothing else better to do? Just go around

your home and look at every product you own which still has a label of any kind on it and

see where it was made. The list is endless I can assure you and it doesn’t just stop at mobile

phones, hoovers and trainers. Still enough said and point made I hope.

Data release wise there’s nothing particularly game changing due out this week, but there

are one or two releases to take note of- namely the latest UK unemployment data due

tomorrow morning and the US retail sales numbers on Wednesday.

Outside of that it’s a case of waiting for the next ‘made in China’ shoe to drop I guess or

possibly something closer to home on the Brexit front perhaps? The markets are going to

remain highly sensitive to any fresh news of import from either direction, as indeed they are

to any surprises on earnings as that season is upon us now too.

Important Economic Releases Due This Week

14/05- 9.30am UK April Unemployment Report

14/05- 10.00am German and EU- May ZEW Growth Expectation Index

14/05- 11.00am US NFIB Small Business Optimism Index

15/05- 10.00am EU Q1 Unemployment and GDP Estimates

15/05- 1.30pm US April Retail Sales Report

15/05- 1.30pm Canada April CPI Inflation Report

16/05- 2.30am Australia April Unemployment Report

17/05- 3.00pm US April Leading Index

17/05- 3.00pm US- May University of Michigan Consumer Sentiment Index