Spot values at a glance:
Asian share markets were under stress on Wednesday as further falls in Chinese stocks and the yuan sent ripples across the region, while oil climbed as the United States leaned on allies to stop buying Iranian crude. The dollar eased while gold lingered near a 6-month low.
Trump Signals Less Confrontation With China on Tech:
President Donald Trump signaled Tuesday he may take a less confrontational path toward curbing Chinese investments in sensitive American technologies, potentially relying on a US committee that scrutinizes foreign acquisitions for national security risks. Trump made remarks Tuesday at the White House that appeared to align with Treasury Secretary Steven Mnuchin’s approach, in an internal administration debate over how to protect US intellectual property from China.
Trump directed the Treasury Department in March to weigh options for restricting Chinese investment in American companies. In May, he said the US “will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology.”
China Markets Remain on an Edge:
According to Bloomberg news, a deepening sense of unease is rippling through China’s financial markets. The benchmark Shanghai stock index has tumbled 20% in just 5 months. The yuan is heading for its longest losing streak in 4 years in Hong Kong. Corporate defaults are mounting. There are homegrown reasons for the concern: the nation’s deleveraging campaign is reducing the amount of liquidity available and threatening growth; then throw in an unpredictable trade war with the US, and investors are facing a long list of reasons to sell. Analysts surveyed by Bloomberg expect losses to deepen as concern over China’s economy, yuan weakness and a trade feud with the US continue to rattle investors.
Emerging Market Woes Persist:
With the addition of China, the slump in emerging-market stocks has now pushed equity gauges worth a combined $8 trillion into bear markets. Developing-nation currencies are also in retreat, heading toward their worst month since November 2016, while the risk premium on emerging-market government bonds over US Treasuries also continues to widen.
Trump Travel Ban Upheld by US Supreme Court:
A divided US Supreme Court upheld President Donald Trump’s travel ban, rejecting contentions that he targeted Muslims and giving him a legal and political victory on a controversy that helped define his presidency.
The 5-4 ruling Tuesday ends a legal saga that dates to the beginning of the Trump presidency and helped establish his assertive, divisive leadership style. The decision bolsters the president’s already broad control over the nation’s borders.
The ban in its current form affects seven countries, five of them predominantly Muslim, and indefinitely bars more than 150 million people from entering the country.
Trump Threatens Harley Davidson with “Big Tax”:
President Donald Trump threatened Harley-Davidson with a “big tax” on Tuesday after the company revealed it was moving production overseas to avoid retaliatory tariffs from the European Union.
In a slew of tweets Tuesday morning, the President also claimed the move could “be the beginning of the end” for the famous motorcycle maker and accused the company of using the tariffs “as an excuse” to move their production operations to Thailand. “Their employees and customers are already very angry at them,” he said.
In a regulatory filing Monday, Harley-Davidson said the retaliatory tariffs from the European Union, imposed in response to Trump’s steel and aluminum tariffs, would increase costs by “$2,200 per average motorcycle exported from the US to the EU,” totalling to as much as $100 million a year in costs. Harley-Davidson said it did not plan on raising retail or wholesale prices to cover the added costs.
The EU announced plans to place retaliatory tariffs on US products like motorcycles, cranberry juice, peanut butter and whiskey in response to Trump’s hefty tariffs on steel and aluminum imports.
Crude Oil Soars:
Oil rose to the highest level in a month as the risk of a supply crunch continued to haunt markets, with a US demand that Iran’s customers halt their imports overshadowing Saudi Arabia’s promise to boost output.
New York futures gained as much as 0.6%, just shy of the $71/bbl mark, after advancing 3.6% on Tuesday. Renewed US sanctions that may curb OPEC member Iran’s exports, a Canadian oil-sands outage and turmoil in Libya have buoyed prices. While Saudi Arabia is said to plan ramping up production, that could strain the kingdom’s spare capacity at a time when the market is already coping with falling Venezuelan output and shrinking American inventories.
Crude is approaching the highs of May as a decision by OPEC and its allies to boost output by 1 million barrels a day is seen as “a little short” of what’s required to ease supply concerns.
USDSGD regained near 8-month highs, following an overnight rebound in the USD. From a technical perspective, 1.3715 is the key resistance level. A Bloomberg analysis report showed that the Singapore dollar’s correlation with the offshore Chinese yuan is near its highest level since 2016, reflecting concerns a China-US trade war could derail the city state’s open economy.
AUDUSD is on course to retest 0.7350 as trade war tensions continue to remain in the spotlight. The Australian dollar, which is widely considered as a proxy for China, has been weakening as of late. AUDUSD has declined around 3.7% over the past 3 weeks, down from its recent high of 0.7677. With iron ore and copper prices likely to remain depressed, the currency pair looks likely to slip lower towards its key support at 0.7165.
USDCAD maintained above the 1.3300 handle, as forces from a stronger USD and crude oil prices cancel each other out. From a technical point of view, the bias is to the upside with 1.3500 a realistic target over the coming weeks.
USDCNH broke above the 6.6000 level for the first time this year after the PBOC lowered its fixing by the most since January this year. The pair, which has gained 8 out of its 9 past trading sessions, is expected to pause around current levels with Bloomberg news reporting that at least one major onshore bank sold the dollar to keep the yuan stronger than 6.6000.
USDJPY declined below 110 after the yen strengthened today as global trade tensions continued to boost demand for safe haven currencies. Further seesawing around the 110 pivot is expected over the coming week.
GBPUSD looks poised to decline for its third straight session, after the pound was weighed down by incoming BOE Monetary Policy Committee member Jonathan Haskel, who indicated a possible rate cut if the economy goes south. Haskel will be replacing BOE hawk McCafferty, one of the three dissenters in last week’s meeting. Near-term support and resistance comes in at 1.3100 and 1.3450 respectively.
Sources: Bloomberg, Reuters