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