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Here is what you need to know on Monday, August 26rd: - TRADE WAR: Following China?s announcement on tariffs on US goods early Friday, US President Tr

Here is what you need to know on Monday, August 26rd:

- TRADE WAR: Following China’s announcement on tariffs on US goods early Friday, US President Trump struck back.  After the market closed, the US announced that starting on October 1st, the $250B of goods coming from China currently being taxed at 25%, will be taxed at 30%, while the remaining $300B of goods will now be taxed at 15% starting September 1st.

-  BREXIT: Weekend headlines related to the future of a trade deal showed crossed accusations on whether who will be responsible for a no-deal Brexit. EU Council President, Donald Tusk, said that the Union is willing to help the UK, although not in the case of a no-deal. UK PM Boris Johnson responded that if the EU “don’t want a no-deal Brexit, then we’ve got to get rid of the backstop from the treaty.” Meanwhile, news indicated that PM Johnson had asked the UK’s attorney general, whether Parliament could be shut down for five weeks, to prevent MPs forcing a further extension to Brexit.

- Major pairs set to open with gaps, as none of the above-mentioned headlines were priced in.

- Safe-havens soared, with the Yen and Gold likely to extend their rallies.

-Crude oil prices fell, as mounting tensions between the US and China would likely lead to decreasing demand.

-Cryptocurrencies at a brink of turning bearish. However, the ongoing risk-averse environment could give them a boost this week. 

Beth Rigby, Political Editor at Sky News reports the latest comments delivered by the UK PM Johnson on a likely Brexit deal, in an interview at the Bi

Beth Rigby, Political Editor at Sky News reports the latest comments delivered by the UK PM Johnson on a likely Brexit deal, in an interview at the Biarritz G7 meeting in France.

PM Johnson on a “million to one chance of a No Deal Brexit”; now says there is a “reasonable chance” of a deal.

And on getting a deal, he said he thinks it’s “more likely” after his meetings with Merkel and Macron.

When asked what about No Deal. Can you promises no food shortages?

 “Frankly I think it’s highly unlikely that there will be food shortages of any kind” (not what govt internal Yellowhammer said), Johnson noted.

Shifting the blame to the EU if there is a No Deal entirely onto the EU, the UK PM said: “People who are going to be responsible for a No Deal are not in the UK”.

The comments may trigger big gaps in the Pound and GBP crosses, as it may intensify the UK-EU tussle over the Brexit issue.

In an interview with BBC news on Sunday, the UK Prime Minister (PM) Johnson said the US wanted to do a deal within a year of Britain leaving the EU on

In an interview with BBC news on Sunday, the UK Prime Minister (PM) Johnson said the US wanted to do a deal within a year of Britain leaving the EU on Oct. 31.

The comments came after his first bilateral meeting with US President Donald Trump earlier on Sunday at the G7 meeting.

Johnson said: “Years and years is an exaggeration, but to do it all within a year is going to be tight.”

Meanwhile, the US President Trump told Johnson that the post-Brexit Britain will have a major trade deal with the US, adding, “He needs no advice he is the right man for the job.”

White House Press Secretary Stephanie Grisham was quick to clarify the US President Trump?s comments in the Washington Post (WaPo) interview, saying t

White House Press Secretary Stephanie Grisham was quick to clarify the US President Trump’s comments in the Washington Post (WaPo) interview, saying that the media misinterpreted Trump’s initial remarks, Bloomberg reports.

Trump said that he had second thoughts about the China trade war escalation.

Grisham said: "The president was asked if he had ‘any second thought on escalating the trade war with China.’ His answer has been greatly misinterpreted. President Trump responded in the affirmative - because he regrets not raising the tariffs higher.” 

Trump on Friday announced he would hike existing tariffs applied to about $250 billion in Chinese goods, to 30% from 25% from Oct. 1. He also said a new round of tariffs on $300 billion in goods will be taxed at 15% from 10%.

In response to the comments by the US President Trump to the Washington Post (WaPo) reporter at the G7 Summit on Sunday, Hu Xijin, editor-in-chief of

In response to the comments by the US President Trump to the Washington Post (WaPo) reporter at the G7 Summit on Sunday, Hu Xijin, editor-in-chief of Chinese and English editions of the Global Times, tweeted:  “Regret? This should be seen as Pres Trump changed his tone after ordering US companies to leave China.Regardless of his specific expression each time, we're seriously making preparations for scenario in which China-US trade relations deteriorate further, even much worse than now.”

  • US Pres. Trump signals regret China trade war escalated, but no willingness to reverse tariffs - WaPo

On late Saturday, Hu tweeted out that “China has 'lost' the US already: all-round high tariffs, Huawei ban, political hostility, Hong Kong, Taiwan... We're facing a completely different United States. We have nothing more to lose, while the US is just starting to lose China.”

Following a breakfast meeting with the UK Prime Minister (PM) Johnson at the G7 Summit on Sunday, when asked by a Washington Post (WaPo) that if he ha

Following a breakfast meeting with the UK Prime Minister (PM) Johnson at the G7 Summit on Sunday, when asked by a Washington Post (WaPo) that if he had “second thoughts” about his tactics that led to the US-China trade escalation, the US President Trump said that yeah, sure why not. Might as well. Might as well. I have second thoughts about everything.”

Despite saying that he may have second thoughts on the trade spat, the US President showed no willingness to reverse the tariffs.

Trump said: “I think they respect the trade war,” about his G-7 allies, who have urged against their escalation. “It has to happen.”

Additional Headlines (via WaPo):

“Trump appeared to dramatically dial back his threat to force U.S. companies to stop doing business with China, something he had insisted he had the power to do despite international alarm.

The comments reflect Trump’s wildly shifting approach to China, which have had a major impact on the U.S. economy and could impact his reelection chances next year.” 

Financial markets are expected to witness major gaps on Monday Asia open, in reaction to a full blown US-China trade war and the weekend developments at the G7 Summit. The safe-haven Yen, Swiss Franc and Gold are expected to extend Friday’s bullish momentum.

The Reserve Bank of Australia (RBA) Governor Philip Lowe, in his speech at the day 3 of the Jackson Hole Symposium, called on the governments to do to

The Reserve Bank of Australia (RBA) Governor Philip Lowe, in his speech at the day 3 of the Jackson Hole Symposium, called on the governments to do to stimulate growth.

Additional Comments:

We are experiencing a period of major political shocks.

Political shocks are turning into economic shocks.

Central banks have a limited and partly exhausted arsenal of tools to fight back.

Monetary policy cannot deliver medium-term growth.

We risk just pushing up asset prices.

Called for investment in infrastructure and structural reforms.

Lowe’s comments had little cues on the Australian monetary policy outlook and therefore, unlikely to have any impact on the local currency, the Aussie dollar, which is likely to see a big opening bearish gap amid US-China trade escalation.

Responding to the earlier comments by the European Council President Donald Tusk, the UK Prime Minister Boris Johnson warned, ?I would say to our frie

Responding to the earlier comments by the European Council President Donald Tusk, the UK Prime Minister Boris Johnson warned, “I would say to our friends in the EU if they don’t want a no-deal Brexit then we’ve got to get rid of the backstop from the treaty. If Donald Tusk doesn’t want to go down as Mr. No Deal then I hope that point will be borne in mind by him too.” 

Tusk said that he would not cooperate with the UK in preparing for on a no-deal Brexit when he arrived at the G7 Summit earlier on Saturday.

  • EU’s Tusk at G7: Open to cooperation on Brexit, but not on no-deal

When asked if he would be telling the US President Trump that he should not escalate the trade war with China, Johnson said: "you bet".

The UK PM further said that his priorities for the G7 summit are the state of global trade, the growth of protectionism, and the UK being seen as an open, outward-looking free-trading nation, as cited by Reuters.

In an interview with the German weekly Frankfurter Allgemeine Sonntagszeitung (FAS) on Saturday, the European Central Bank (ECB) Governing Council mem

In an interview with the German weekly Frankfurter Allgemeine Sonntagszeitung (FAS) on Saturday, the European Central Bank (ECB) Governing Council member Jens Weidmann shot down heightened expectations of an economic stimulus.

Key Quotes (via Reuters):

Currently sees no need for a major economic stimulus programme.

Remains cautious on government bonds because they risk blurring the line between monetary and fiscal policy.

It is still not right to fundamentally question the criteria for bond purchases.

Friday’s rally in the shared currency is likely to gain extra impetus on Weidmann’s comments on Monday. EUR/USD rallied hard above the 1.11 handle after the US dollar slumped broadly amid US-China trade war and yield curve inversion, courtesy the US President Trump’s social media barrage.

China?s Commerce Ministry issued a statement on the renewed trade dispute with the US on Saturday, warning the US to stop wrong trade actions or face

China’s Commerce Ministry issued a statement on the renewed trade dispute with the US on Saturday, warning the US to stop wrong trade actions or face consequences.

Key Comments:

China strongly opposes the US decision to raise tariffs on $550 bln worth of Chinese imports.

Strongly urges the US not to misjudge the situation, immediately stop its wrong actions.

The US should not underestimate the determination of the Chinese people.

All consequences would be borne by the US if it does not stop its wrong actions on trade.

US unilateralism and bullying trade protectionism, maximum pressure violate consensus reached by the head of both nations.

  • Breaking: Trump retaliates to Chinese tariffs by announcing fresh tariffs on Chinese products
  • Trump is welcome to relocate GM, Ford and other automakers back to the US – Global Times
Responding to the US President Trump?s tweet that US companies must look for ?alternative to China?, Hu Xijin, editor-in-chief of Chinese and English

Responding to the US President Trump’s tweet that US companies must look for ‘alternative to China’, Hu Xijin, editor-in-chief of Chinese and English editions of the Global Times, tweeted on Saturday, “President Trump is welcome to relocate GM, Ford and other automakers back to the US. As far as I know, China is their No.1 market, they can give up their market to BMW, VW and Toyota. Go back to the US, let each American family have 20 cars.”

In one of his Twitter rant on Friday, Trump said: “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA. I will be responding to China’s Tariffs this afternoon. This is a GREAT opportunity for the United States.”

Markets eagerly await the reaction to Trump’s retaliation on the Chinese tariffs on Monday. The US President tactfully timed the announcement of the fresh retaliatory tariffs on Chinese products after the Wall Street close.

  • Breaking: Trump retaliates to Chinese tariffs by announcing fresh tariffs on Chinese products
  • Special report on Wall Street close: US stocks end in a trade war bloodbath, plotting long-term Fibo downside targets
On his arrival at the G7 Summit earlier today, the European Council President Donald Tusk said that he is open to cooperation on Brexit. However, he a

On his arrival at the G7 Summit earlier today, the European Council President Donald Tusk said that he is open to cooperation on Brexit.

However, he added: “One thing I will not cooperate on is No Deal. And I still like to think Boris Johnson will not want to go down in history as Mr. No Deal."

Tusk spoke ahead of his much-awaited meeting with the UK Prime Minister (PM) Boris Johnson on Sunday to discuss the Brexit plan.

The Cable enjoyed a relief rally and tested the 1.23 handle on Friday after the US dollar was thrown under the bus broadly by the US President Trump’s Twitter barrage following China’s unexpected retaliatory tariffs on the US imports.

Trump’s rant led to the US yield curve inversion, as it fueled concerns that the trade war will trip the US economy into a recession.

On Monday Asia open, the outcome of the PM Johnson and Tusk’s meeting will influence the GBP trades. However, the reaction to Trump’s retaliation to the Chinese tariffs will emerge the main market driver.

  • Breaking: Trump retaliates to Chinese tariffs by announcing fresh tariffs on Chinese products
Wall Street traders were all set for a positive day on the premise that the Federal Reserve's Powell would advocate for precautionary measures to offs
  • Shocking trade war escalation sinks US stocks, sending risk appetite packing. 
  • The Dow Jones Industrial Average closed down 623.34 points.

Wall Street traders were all set for a positive day on the premise that the Federal Reserve's Powell would advocate for precautionary measures to offset the 'potentially' adverse implications for an otherwise growing US economy. However, China came along with a surprisingly timed retaliation in the trade war saga and dispute between Beijing and the US. Consequently, the Dow Jones Industrial Average closed down 623.34 points, or 2.4%, at 25628.90. The S&P 500 dropped 2.6% and the Nasdaq Composite fell 3% and here's why:

News came that China will impose 5% to 10% tariffs on $75 billion of goods (including frozen pork and nuts) along with resuming the 25% duty on US automobiles and auto parts from 15th December, although some tariffs will come into effect as soon as 1 September. It wasn't so much that China had retaliated in the way that they did which caused the panic attack in the markets on Friday, it was the fact that traders were caught completely off guard. Markets were simply not prepared for the Chinse announcements out of the blue like this given that China did not immediately react to the 10% US tariffs on $ 300 billion goods and President Trump's unexpected tariff delays to 15 December.

Indeed, there had been plenty of canaries in the mine for markets to take heed of throughout the various official Chinses news outlets that had been warning of such scenarios, warnings that had prevented a full return of risk appetite, weighing on US yields and stock markets. The US yield curve had been big news in recent sessions which gave oxygen to the US recession pundits, of which many economists have warned that such sentiment circulating in the media could end up being self-fulling. Prior to Friday's session, markets were already on edge with bond prices sending fresh warnings about the US economy after a report showed that manufacturing activity slowed for the month of August to the lowest in almost 10 years forcing the yield on the 10-year note to fall below the 2-year's briefly. 

Trump fires back at China after the close

Following the Chinese retaliation, it was circulating that Trump would react, and, of course, he did! Tacitly timed after the Wall Street close, no doubt, Trump came out with the following statement over Twitter:

For many years China (and many other countries) has been taking advantage of the United States on Trade, Intellectual Property Theft, and much more. Our Country has been losing HUNDREDS OF BILLIONS OF DOLLARS a year to China, with no end in sight Sadly, past Administrations have allowed China to get so far ahead of Fair and Balanced Trade that it has become a great burden to the American Taxpayer. As President, I can no longer allow this to happen! In the spirit of achieving Fair Trade, we must Balance this very unfair Trading Relationship. China should not have put new Tariffs on 75 BILLION DOLLARS of United States product (politically motivated!). Starting on October 1st, the 250 BILLION DOLLARS of goods and products from China, currently being taxed at 25%, will be taxed at 30% Additionally, the remaining 300 BILLION DOLLARS of goods and products from China, that was being taxed from September 1st at 10%, will now be taxed at 15%. Thank you for your attention to this matter!

So, we can expect further declines in stock markets for sessions ahead and despite Powell's best efforts of talking up the US economy in his delivery at the Jackson Hole earlier in the day. 

Powell's careful delivery combined with trade war escalation opens to door for two more rate cuts

Chair Powell managed to pull off an impressive tightrope act by not deviating from the "mid-cycle policy adjustment" mantra, but at the same time, he acknowledged that developments since the July meeting have been "eventful" - If only he knew what was to come later in the day!

"He cited a number of risks to the outlook (new China tariffs, further evidence of slowing in Germany and China, geopolitical events including Brexit, Hong Kong, Italy, and financial market volatility and post-crisis lows in yields). Based on these risks, Powell reiterated that the Fed "will act as appropriate to sustain the expansion", suggesting a rate cut is likely in September," analysts at TD Securities acknowledged. However, markets will now be quick to price in subsequent from the Fed, perhaps even as early as October. 

What does this all mean for US stocks?

When comparing the U.S. stock market to the 49 countries and competitor markets, investors have obviously been content in its performance to date - much to the delight of 'talk(twitter)-it-up-Trump' and current administration as we head into an election year. However, this trade war escalation is sending can only end badly for US stocks if the US consumer gets the brunt of it. Moreover, the majority of the best performing components of the benchmarks to date are those corporates that have foreign sales which account for no less than 43% of total revenues for the S&P 500 listed companies - Trade war escalation can only be bad news for these companies and when you see a retraction in consumer confidence and job growth ... Well, it doesn't take more than common sense to see what the ramifications are going to be for US stocks.

DJIA levels

Pulling up the charts on the bellwether DJIA index, we can see that volatility is at play and when we see this we should be getting prepared for one of two things - either an upside breakout or a downside breakout which would usually extend into either a continuation or a reversal. The fundamentals are stacked against an extension of the prevailing trend so we focus our attention on the downside levels for now.  

Scrolling out all the way back to 1915, (yes, why not), then we can apply a Fibonacci (Fibo') retracement tool and mark the 23.6% at 21000 - below the Dec 2018 lows of 21712. On the way there, first up, the 21-monthly moving average is located at the May and Jun lows in the 24700s which seems like a reasonable target to aim for in coming sessions considering they are double-bottom lows - Thereafter, the 23.6% Fibo' of the March 2009 swing lows to all-time highs is located in the 22,200s.

 

 

Trump announces 5% additional tariffs on Chinese products: For many years China (and many other countries) has been taking advantage of the United Sta
  • Trump announces 5% additional tariffs on Chinese products.
  • Gold, Yen, AUD and the AUD/JPY should b the ones to watch in the FX space. 

In retaliation to the earlier news that China will impose 5% to 10% tariffs on $75 billion of goods (including frozen pork and nuts) along with resuming the 25% duty on US automobiles and auto parts from 15th December, Trump has struck back in the latest round of trade wars - neatly timed after the stock market close which will likely make for a blood bath open next week - (more on that below).

Here is the announcement made by Trump on Twitter:

For many years China (and many other countries) has been taking advantage of the United States on Trade, Intellectual Property Theft, and much more. Our Country has been losing HUNDREDS OF BILLIONS OF DOLLARS a year to China, with no end in sight Sadly, past Administrations have allowed China to get so far ahead of Fair and Balanced Trade that it has become a great burden to the American Taxpayer. As President, I can no longer allow this to happen! In the spirit of achieving Fair Trade, we must Balance this very unfair Trading Relationship. China should not have put new Tariffs on 75 BILLION DOLLARS of United States product (politically motivated!). Starting on October 1st, the 250 BILLION DOLLARS of goods and products from China, currently being taxed at 25%, will be taxed at 30% Additionally, the remaining 300 BILLION DOLLARS of goods and products from China, that was being taxed from September 1st at 10%, will now be taxed at 15%. Thank you for your attention to this matter!

It was supposed to be all about the Jackson Hole today, with Powell delivering a speech which has left the door open to a rate cut in September. However, the markets were not prepared for the Chinse announcements where some tariffs will come into effect as soon as 1 September while others will kick in around 15 December. Indeed, this tariff retaliation from China was an utter surprise to many given that China did not immediately react to the 10% US tariffs on $ 300 billion goods and President Trump's unexpected tariff delays to 15 December -  The sudden surprise element of it all will cause a risk-off to asset markets globally which makes for a treacherous Asian open next week.

FX implications:

FX will be trading in a feedback loop to what goes down in the global equity markets - (US stocks ended in a blood bath on Friday on the news). The Yen and CHF will likely be underpinned as the go-to place for investors and gold prices are likely to break down the doors of the resistance line through the 1535s which has capped the precious metal in July and August so far. The Aussie, already tainted by a dovish Reserve Bank of Australia which trades as a proxy to China's geopolitical business will likely be pressured below the August trendline support in the 0.6730s opening the case for a breakout into the lower levels of the 0.60s renewing a bearish case again for the FX space's risk barometer - AUD/JPY. 

 

 

Fed?s Clarida is crossing the wires and has said that decisions are taken at one meeting at a time, but has warned of a worsening economic backdrop on

Fed’s Clarida is crossing the wires and has said that decisions are taken at one meeting at a time, but has warned of a worsening economic backdrop on the global scale.

Key comments

  • US economic data since July has come in pretty well.
  • Not seeing an elevated risk of recession.
  • Treasury yields are driven down by global issues.
  • The Fed is focused on its congressional mandate.
  • See US growth in 2020 at or above trend.

FX implications:

Coupled with the latest trade war developments, things do not look very bright for risk appetite going forward and the Yen, CHF and gold likely to stay under demand. We are waiting for Trump to kick back at the Chinese following Chinese tariff announcements. 

  • DJIA heavily in the red after Trump says U.S. companies must look for ‘alternative to China’

US Stocks are in the red while the drum beats of the trade wars continue to play havoc on investor sentiment. First of all, President Donald Trump has
  • US stocks are in a state of panic over trade wars.
  • The market expects more tariff announcements today.

US Stocks are in the red while the drum beats of the trade wars continue to play havoc on investor sentiment. First of all, President Donald Trump has been saying that he’s ordering American companies to start looking for “an alternative to China,” after Beijing finally punched back with tariffs on imports of U.S. goods.

We are trading volatile markets to the week with headlines from the Jackson Hole streaming through whereby Federal Reserve chairman Powell has delivered comforting words to investors whereby he has indicated that the door is indeed wide open for another interest rate cut in September.

The mixed backdrop for investors has subsequently resulted in the Dow Jones Industrial Average DJIA, -2.26%  falling 520 points, or 2%, to 25,732. The S&P 500 index fell dropped 59 points to 2,863 in a 2% decline while the Nasdaq Composite index lost 195 points, or 2.4%, to 7,796.

"The Dow is down 573 points perhaps on the news that Representative Seth Moulton, whoever that may be, has dropped out of the 2020 Presidential Race!" -

Trump

We are waiting for Trump to say more and the market expects more tariff announcements.

DJIA levels

 

Iris Pang, Economist at ING, points out that China has eventually retaliated with tariffs but this retaliation is far from the last. They expect Ameri

Iris Pang, Economist at ING, points out that China has eventually retaliated with tariffs but this retaliation is far from the last. They expect American companies to be included in China’s unreliable entity list and think USD/CNY could move closer to the 7.10 level or even cross 7.10 briefly. 

Key Quotes: 

“China has just announced it will impose 5% to 10% tariffs on $75 billion of goods (including frozen pork and nuts) along with resuming the 25% duty on US automobiles and auto parts from 15th December. Some tariffs will come into effect on 1 September while others will kick in around 15 December. What's interesting to note here is that the market was not expecting this tariff retaliation given that China did not immediately react to the 10% US tariffs on $ 300 billion goods and President Trump's unexpected tariff delays to 15 December.”

“But even though China's tariffs are smaller than what the US has imposed, the sudden surprise element of it all should cause a risk-off to asset markets globally.”

“As China has allowed USD/CNY to cross 7.0, we think it is possible that this tactic is reused to weaken the yuan further to surprise the market again. We expect USD/CNY to move closer to 7.10 level or even cross 7.10 briefly if the trade talks in September don't make any progress like the last round.”

“If the US retaliates harshly, then we expect China to really kick off its unreliable entity list. But if it doesn't, it will be on the back foot during the upcoming trade negotiations in September - and given President Trump's latest tweets, that seems improbable. In our view, one thing is for certain, this is a lose-lose situation for both China and the US in this trade and technology war.”
 

Analysts at Rabobank, see the Brazilian economic Q2 forecast consistent with full-2019 GDP growth of 0.5-0.6%, meaning the third year in a row with th

Analysts at Rabobank, see the Brazilian economic Q2 forecast consistent with full-2019 GDP growth of 0.5-0.6%, meaning the third year in a row with the economy rising by 1% or less. For 2020, despite global headwinds, they expect some better traction (especially from investment) on the heels of lower policy interest rate, easier local financial conditions and a reform-led boost in confidence.

Key Quotes: 

“In recent days, external headwinds (i.e. trade war escalation and global economy slowdown) haven’t given Brazilian assets a break, despite of signals of an improving domestic outlook. If short term fundamentals (e.g. globally stronger USD) do explain part of the BRL sell-off, our models suggest there may still be some influence of noisy technicals (or premium build-up). And the latter could be partly associated with the deterioration of markets and outlook in Argentina.”

“We have reasons to believe that our neighbor’s woes should have limited spillover effects for Brazil after the dust settles. And that partly helps explain why we still see USD/BRL around 3.70-3.80 for the end of this year (which looks like a bold, if not outdated estimate right now).”

“Brazilian exports to Argentina means just 0.8% of Brazilian GDP, so that it takes a slump in Argentinian economic activity to subtract just a few tenths out of Brazilian GDP. Brazil also has a more solid external position, given the low current account deficit, the plentiful direct investment and the hefty FX reserves.”

“Brazil is experiencing low levels of inflation and anchored inflation expectations, while Argentina is facing big pressures that are about to intensify in the short run. August IPCA-15 released this week showed another downside surprise in the headline, with core inflation trends slowing further from already muted levels, much below the Brazilian Central Bank’s mid-target. Not a coincidence that BCB is likely to cut interest rate before year-end (to a new historical low of 5%), whereas the BCRA has recently hiked rate (by a full 11% to whopping 75% in nominal terms).”

“For the coming week, the macro highlight is the release of 19Q2 GDP data (Thu.). We look for a slight sequential growth of 0.2% q/q (less than 1% annualized), with the economy moving sideways in the first half. That underscores the weakest GDP recovery after the worst recession on record.”
 

Bank of England's governor, Carney, has stated that the UK economy is operating just below potential with inflation just above the target. Key quotes:

Bank of England's governor, Carney, has stated that the UK economy is operating just below potential with inflation just above the target.

Key quotes:

  • Policy uncertainty, protectionism could push down on global equilibrium interest rate, exacerbate concerns about monetary policy limits.
  • Surveys indicate that the UK economy is stagnating in Q3, underlying growth is likely positive but muted.
  • Weak UK business investment is a warning to others of the potential impact of persistent trade tensions.
  • Believes it is more likely to be appropriate to ease monetary policy than not after no-deal Brexit.
  • Says the ability of monetary policy to smooth no-deal Brexit hit would be constrained by limits to MPC tolerance of above-target inflation.
  • The possibility of no deal Brexit has increased, but it is not a given.
  • Extended Brexit uncertainty could raise the prospect of softer domestic inflation and resurgent imported inflation.
  • 'Limited and gradual’ rate hikes likely to be needed if there is a Brexit deal.

About the BoE

Mark Carney is Governor of the Bank of England and Chairman of the Monetary Policy Committee, Financial Policy Committee and the Board of the Prudential Regulation Authority. His appointment as Governor was approved by Her Majesty the Queen on 26 November 2012. The Governor joined the Bank on 1 July 2013.

Matthieu Arseneau, analysts at the National Bank of Canada point out that US corporations could get hit in the market with an escalation of the trade

 Matthieu Arseneau, analysts at the National Bank of Canada point out that US corporations could get hit in the market with an escalation of the trade war between the US and China.

Key Quotes:

“The U.S. stock market has been the third top performing stock market among the 49 countries in the MSCI ACWI index since early 2017 (following Brazil and Saudi Arabia). This development is certainly a source of pride for the current administration as we head into an election year. The ongoing trade war, however, represents a risk to the U.S. stock market.”

“We’ve argued several times that the U.S. corporations are not immunized against a trade war escalation as foreign sales account for no less than 43% of total revenues for the S&P 500 listed companies.”

“Stocks of firms with the largest foreign exposures are still outperforming by a significant margin the ones tilted towards the domestic economy. This advantage can wane fast if trade tensions do not abate in the coming weeks. Recent S&P500 drawdowns have indeed been felt more acutely for these corporations.”
 

Analysts at CIBC, explained that the Japanese economy has not disappointed so far during 2019 and is one factor why investors are holding long JPY pos

Analysts at CIBC, explained that the Japanese economy has not disappointed so far during 2019 and is one factor why investors are holding long JPY positions. 

Key Quotes: 

“Japan’s economy remains slow and plodding, but no more so than had been expected at the start of the year. In fact, Japanese growth expectations have been slightly upgraded since January 1st, unlike the often large downgrades seen for others. While that hasn’t led to a pick-up in inflation, it could still see investors becoming a little more positive on the Japanese economy and related assets as growth elsewhere eases.”

“Even if global uncertainties fade a little, investors could continue to hold JPY long positions which would support the currency."

Responding to US President Donald Trump's tweets, US National Retail Federation (NRF) in a statement on Friday said that it was "unrealistic" for Amer

Responding to US President Donald Trump's tweets,  US National Retail Federation (NRF) in a statement on Friday said that it was "unrealistic" for American retailers to move out of China, the world's second-largest economy, per Reuters.

"Our presence in China allows us to reach Chinese customers and develop overseas markets," NRF senior vice president for government relations, David French, said in a statement. "This, in turn, allows us to grow and expand opportunities for American workers, businesses and consumers." 

These remarks had little to impact on the market sentiment. As of writing, the 10-year US Treasury bond yield was still losing more than 6% on a daily basis.

The USD/CHF is having the worst performance in three weeks amid risk aversion. Earlier today the pair peaked at 0.9876, the strongest level since earl
  • Safe-haven demand boosts CHF, JPY, gold and bonds, Wall Street deep in red. 
  • USD/CHF drops from three-week highs to one-week lows in a few hours. 

The USD/CHF is having the worst performance in three weeks amid risk aversion. Earlier today the pair peaked at 0.9876, the strongest level since early August and then reversed dramatically, falling 150 pips from the top. So far it has been unable to find support and as of writing trades at 0.9742, at the lowest level since last Thursday. 

Swiss franc among top performers 

The escalation in trade tensions between the US and China triggered a sell-off in Wall Street and a rally in bonds. Still, market participants await the response of US President Trump to the announcement of an increase in Chinese tariffs to US products. 

The US yield curve is again inverted. The 10-year yield plummeted from 1.63% to 1.51%, close to YTD lows. In Wall Street, the DOW JONES is falling 1.72% and the NASDAQ 2.39%. 

Today’s event offset Powell’s speech in Jackson Hole and increased expectations about more interest rate cuts from the Federal Reserve. Regarding the greenback, the DXY is down 0.50%, reversing from monthly highs. 

USD/CHF Bias now bearish 

From a technical perspective, USD/CHF broke below the lower limit of an ascendant channel and also under the 0.9770 support area. At the moment is testing 0.9740/45 and below here the not much until 0.9700/05. On the upside 0.9770 has become the immediate resistance. 

 

The United States 2-year and the 10-year Treasury bond yield curve inverted to negative 30 basis points on Friday amid heightened concerns over a prol
  • Yield curve inversion sparks fears of recession on Friday. 
  • Dollar comes under strong selling pressure as markets price Fed rate cuts.
  • Markets are waiting for US President Trump to respond to China tariffs.

The United States 2-year and the 10-year Treasury bond yield curve inverted to negative 30 basis points on Friday amid heightened concerns over a prolonged US-China trade war dragging the economy into a recession. As of writing, the 10-year T-bond yield was down 6.22% on the day at %1.510 while the 2-year reference was down 6% at 1.511%.

Earlier today, China announced that it will start imposing new tariffs on $75 billion worth of US imports.  "New tariff rates imposed on some US goods will be ranging from 5% to 10% and will take effect on September 1 and December 15," China's statement read.

Although most experts were expecting China to retaliate in some way or the other to the US decision to impose tariffs on $300 billion worth of Chinese goods, US President Trump's quick and intense reaction sent T-bond yields and Wall Street's main indexes spiralling down.

"We don’t need China and, frankly, would be far better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must stop," Trump tweeted out. "I will be responding to China’s tariffs this afternoon. This is a great opportunity for the United States."

Dollar slides as investors price further Fed stimulus

Meanwhile, in his prepared statement that was delivered at the Jackson Hole Symposium today, Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, said that the Fed was focused on how trade developments were affecting the outlook and added that they were standing ready to adjust the policy "to promote objectives." Following President Trump's Twitter rant, the probability of a 50 basis point rate cut in July rose to 14% from 0% seen on Thursday. 

Heightened probability of an aggressive rate cut also weighed on the dollar and dragged the US Dollar Index, which tracks the greenback's value against a basket of six major currencies to a fresh nine-day low of 97.67.

Among the major currency pairs, the USD/JPY pair erased more than 100 pips in the second half of the day with a strong reaction to the shift in the market sentiment. The EUR/USD pair erased this week's gains and now looks to post modest weekly gains near 1.1140. Similarly, the GBP/USD pair retraced its early drop remains on track to close the second straight week in the positive territory. 

Responding to the latest developments surrounding the US-China trade conflict, the US Chamber of Commerce in a statement said that continued, construc

Responding to the latest developments surrounding the US-China trade conflict, the US Chamber of Commerce in a statement said that continued, constructive engagement was the right way forward.

"Time is of the essence. We do not want to see a further deterioration of US-China relation," the statement read.

"We urge the administration and the government of China to return to the negotiating table to complete an agreement that addresses concerns over technology transfer practices, intellectual property enforcement, market access, and the globally damaging impact of Chinese domestic subsidies."

Meanwhile, US Treasury bond yields continue to edge lower in the session. As of writing, the 10-year reference was down 5.07% on the day at 1.528%.

Following his meeting with Dutch Prime Minister Mark Rutte, European Union (EU) Chief Brexit negotiator Michel Barnier reiterated that the Withdrawal

Following his meeting with Dutch Prime Minister Mark Rutte, European Union (EU) Chief Brexit negotiator Michel Barnier reiterated that the Withdrawal Agreement is the best deal possible based on UK redlines.

"We are ready to analyse UK proposals that are realistic, operational & compatible with our principles. EU wants an orderly withdrawal but is ready for any outcome," Barnier tweeted out.

The GBP/USD inched higher on these comments and was last seen trading at 1.2263, adding 0.1% on a daily basis.

After dropping to a fresh daily low of 1.3275 in the early trading hours of the American session, the USD/CAD pair reversed its direction with the com
  • WTI drops below $54, erases more than 3% on the day. 
  • China retaliates with tariffs on $75 billion worth of US goods.
  • Trump says he will respond to China, 10-year US T-bond yield drops more than 4%.

After dropping to a fresh daily low of 1.3275 in the early trading hours of the American session, the USD/CAD pair reversed its direction with the commodity-sensitive Loonie coming under renewed selling pressure due to the sharp fall witnessed in crude oil prices. As of writing, the pair was up 0.1% on the day at 1.3315.

Earlier today, the data published by Statistics Canada showed that retail sales in Canada remained unchanged on a monthly basis in June following May's 0.2% decline and beat the market expectation for a fall of 0.1% to provide a boost to the CAD.

All attention on US-China trade conflict

However, after China announced that it will be retaliating by introducing new tariffs on $75 billion worth of US imports triggered a strong reaction from Donald Trump and revived fears of a prolonged trade war. With the initial market reaction, trade-sensitive crude oil prices fell sharply with the barrel of West Texas Intermediate dropping below the $54 mark with a daily loss of more than 3% and caused the Loonie to weaken against its rivals.

US President Donald Trump in a Twitter thread said that the US doesn't need China and added that they would be "far better off" without China. "I will be responding to China’s tariffs this afternoon. This is a great opportunity for the United States," Trump tweeted out.

On the other hand, the Greenback struggled to find demand as investors started to price a higher probability of the Fed being forced to make an aggressive rate cut in September. The US Dollar Index, which spent the week above the 98 mark, lost its traction and was last down 0.45% on the day at 97.77, allowing the pair to limit its losses for the time being.

Technical levels to watch for

 

Commenting on the escalating US-China trade tensions, "Without China's market of 1.4b people, US farm goods will have nowhere to go, farm land being a

Commenting on the escalating US-China trade tensions, "Without China's market of 1.4b people, US farm goods will have nowhere to go, farm land being abandoned, farmers going bankrupt," Hu Xijin, editor-in-chief of Chinese and English editions of the Global Times, tweeted out.

"US energy products will also lose an infinite market. Chinese auto market is already bigger than the US' all of this doesn't have to happen. I hate trade war."

Markets are now waiting for US President Trump to respond to China's new tariffs on $75 billion worth of US imports.

Gold continues to rise sharply amid concerns about the impact of the escalation in the US-China trade war. The demand for safe-haven assets emerged ov
  • Trump meets with key trade advisers, will announce a response to Chinese tariffs. 
  • Risk aversion intensifies on trade war escalation: Gold, CHF and JPY soar. 

Gold continues to rise sharply amid concerns about the impact of the escalation in the US-China trade war. The demand for safe-haven assets emerged over the last hours, leading to a rally in the yellow metal. 

China retaliates, Trump tweets and markets fear the worst 

The value of gold rose now almost $40 from daily lows. Recently reached $1,529.60/oz, the highest intraday level since August 13, when it traded at $1,535 the highest in six years. 

The bullish tone in gold and the negative momentum around the greenback remains intact, so it the metal could hit new multi-year highs soon. XAU/USD stands around $1,525; if it breaks above YTD highs, the next strong resistance is located at $1,550/55. 

Market focus is now on the announcements from the White House. It has been reported that Trump is with his trade team. In a tweet, Trump said US companies were “hereby ordered” to start looking for an alternative to China. The escalation in trade tensions increased the odds of more aggressive rate cuts from the Fed and weigh on the US dollar. 

 

According to a tweet by Eamon Javers, Washington Correspondent for CNBC, US President Donald Trump is meeting with his trade team at the White House a

According to a tweet by Eamon Javers, Washington Correspondent for CNBC, US President Donald Trump is meeting with his trade team at the White House at the moment.

Earlier in the hour, President Trump said that he will be responding to China's retaliatory tariff announcement on $75 billion worth of US imports.

"We don’t need China and, frankly, would be far better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must stop," Trump tweeted out.

As markets are waiting for Trump to make his announcement, the 10-year US T-bond yield is down 4.3% on the day and three main indexes of Wall Street are erasing more than 1%. 

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