Here are the latest developments in global markets:
FOREX: The US dollar moved higher by 0.26% against the Japanese yen but held below its intraday high of 112.27, while the US dollar index edged marginally higher by 0.09%. US President Donald Trump announced yesterday that his country will impose a 10% tariff on $200bn of Chinese goods from September 24 as was widely anticipated. As of January 1, 2019, those tariffs will be raised to 25%. Euro/dollar erased earlier gains to return to 1.1682, near its opening price, while pound/dollar retreated from the 7-week high (-0.23%) despite German and Austrian ministers expressing hopes for a Brexit solution by November’s deadline. In the antipodean sphere, aussie/dollar and kiwi/dollar advanced by 0.35% and 0.21% respectively. Meanwhile, dollar/loonie declined by 0.17% to 1.3021.
STOCKS: European equities were in positive territory on Tuesday at 1100 GMT except for the Italian FTSE MIB which was weaker by 0.14%. The pan-European STOXX 600 and the blue-chip Euro STOXX 50 inched up by 0.07% and 0.04% respectively. The German DAX 30 climbed by 0.15%, the French CAC 40 increased by 0.22% and the British FTSE 100 jumped by 0.19%. In Asia, the majority of stocks closed strongly positive, while futures tracking US indices such the S&P 500, Dow Jones and Nasdaq 100 were slightly up, pointing to a softer positive open.
COMMODITIES: WTI crude and the London-based Brent were strongly positive early in the European session, trading higher at $69.87/barrel (+1.41%) and $79.25/barrel (+1.54%) correspondingly as the new round of tariffs on China’s imports to the US was finally formalized. Moreover, OPEC Secretary General Mohammed Barkindo mentioned today that OPEC and non-OPEC counties aim to agree on a framework securing long-term cooperation by December while regarding OPEC’s summit in Algeria on September 23 he said that oil producers will discuss on mechanisms to achieve full compliance on crude supply targets. A headline stating that Saudi Arabia is comfortable with higher Brent prices was also supportive. In precious metals, gold prices slowly returned below $1200/ounce, last seen at $1199.3 (-0.17%).
Day ahead: Traders wait for a response from China; Bank of Japan decides on rates
Although markets reaction to fresh US import tariffs against China was moderate, any potential headlines announcing retaliatory measures by China during the day could inspire risk-off sentiment among traders. As widely expected, the US President imposed a 10% tariff on $200 billion Chinese imports late on Monday taking effect on September 24, adding that the new tariffs will increase to 25% on January 1, 2019. Moreover, the US leader warned that should Beijing fight back, fresh tariffs would be applied to a larger list of $267 billion Chinese products. Beijing, however, does not look like giving up despite the US’s enhanced protectionism, as authorities continued to unleash threats of retaliation on Tuesday, arguing that US actions cannot be accepted and that there is no choice but to respond accordingly. Yet, questions arise about how China will counterattack given that Chinese orders for US products total at around $130 billion based on the latest stats, less than a third of what the US purchases from China. Recall that Beijing had earlier threatened to impose duties ranging from 5% to 25% on $60 billion US goods involving intermediate goods and capital equipment. The US avoided restrictions on items that could have a direct impact on consumers such as Apple products, which hold the largest share of Chinese shipments to the US in terms of value.
Brexit will be under the spotlight too as the UK Prime Minister prepares to meet EU leaders in an informal summit in Salzburg, Austria on September 20. That would be the first meeting after the UK presented the Chequer’s withdrawal plan to the EU, with investors looking forward to any clues on what could be the EU’s stance on the topic ahead of the EU summit next month. This is the target day for the EU Brexit negotiator to agree on the exit plan. Note that yesterday a report by The Times newspaper raised hopes on the Brexit progress, stating that Barnier is working on plans to limit physical checks in the Irish border, a key issue in the Brexit talks. Today the UK Brexit Secretary, Dominic Raab, reiterated that a border in the Irish sea is not the UK’s preferred arrangement.
Turning to data releases, Tuesday’s calendar will feature Canadian Manufacturing sales for the month of July at 1230 GMT, while at 1400 GMT, the National Association of Home Builders in the US will publish its Housing Market index which tracks the relative level of current and future home sales. In New Zealand, the outcome of the bi-weekly dairy auction is due at a tentative time before the release of the Westpac Consumer Sentiment Index and current account readings at 2200 GMT and 2245 GMT respectively.
Elsewhere, Japanese trade stats will come under review at 2350 GMT ahead of the Bank of Japan’s rate decision at 0300 GMT on Wednesday. Policymakers are forecasted to leave interest rates unchanged at -0.10% for the 22nd consecutive time as inflation remains far below the BoJ’s 2.0% price goal. Recent developments in the trade front could keep the central bank cautious as well. A press conference will follow the rate announcement at a tentative time.
