US Market Closed
The US is closed today for Labor Day, following last Friday’s cautious finish. The key headlines driving markets are that the US imposed a 15% tariff on $110bn of China imports on Sunday with another bunch of $160bn to be unleashed 15th December. China is expected to retaliate with $75bn on US imports. In general, markets are in a holding pattern as headlines slow. Oil prices lost most of the gains as hurricanes Dorian changed path. The exodus from EUR into USD continued last week with the pair falling 1.5% and 0.8% to 1.0980 on Friday alone. US 10-yr TIPS yield fell to lowest level & negative territory in 6-years.
Last weeks second revision of 2Q GDP growth had some bright spots. 2Q reading was revised lower to 2.0% from 2.1% qoq, yet personal consumption was upgraded to 4.7% from 4.3%. This is the fastest pace of consumer spending in over four years. Also, core PCE came in at 1.7% yoy vs. 1.8% indicating that slowing inflation pressure provides the Fed with more maneuverability. As expected trade balance was weak widening to $982.5bn vs. 978.7bn prior month. Trade tensions are seemly deescalating, as Trump indicated that talks over trade were scheduled for “today”. “China has ample means for retaliation but thinks the question that should be discussed now is about removing the new tariffs to prevent escalation,” Ministry of Commerce spokesperson Gao Feng stated to news agencies. US-China trade tensions will continue to drive FX markets next week. Yet, chasing the random volatility caused by flash news headlines and Trump tweets are likely to give traders whiplash.
In Thailand, July exports increased 3.8% yoy after contracting 2.1% in June, while imports expanded marginally by 0.9% yoy after dropping by 9.6% previously. This was an encouraging sign considering the external sectors has been weighing on the economy. The current account surplus remained solid at $1.8bn from $3.9bn prior. However, falling exports could drag private consumption in the 2H. Further, imprinting the feeling of returning health foreign reserves held at near-record levels at $220bn. Despite macro headwinds, the Southeast Asian economy looks to have already bottomed. Thailand is currently tracking a respectable 2.4% GDP growth this year. Unlikely other Asian currencies, which have followed USDCNY higher, THB has bucked the trend. USDTHB has depreciated 6.5% YTD increase the likelihood of the BoT steps in to reduce the baht’s strength. BoT motivation for cutting interest rates last month was to reduce the baht’s strength. Recent BoT minutes indicate a hesitation to cut-rate purely for slowing TBH appreciations however should the currency further lose regional competitive more forceful measures.
Swissie easing as the US is closed
Markets appear muted as the US enjoys its Labor Day extended weekend. Indeed, the implementation of tariffs by both major economies definitely appears to be ignored by financial markets, which are trading in positive territory. On the FX side, safe-haven currencies finally have a moment of respite, with the Swissie declining from mid-August high. Yet the recent lull is expected to be short-sighted as US – China trade talks, Fed and ECB should play a major role in upcoming currency trends. The recent data release of manufacturing PMI and retail sales provide some comfort, confirming that the Swiss economy stays robust, albeit the situation for SMEs remains worrisome.
The release of July retail sales, given at 1.40% (prior: 0.70%), highest since October 2018 along with August Manufacturing Purchasing Managers Index standing at 47.2 (prior: 44.7), although maintained in contraction territory for the fifth consecutive time, seem to confirm a recovery phase in the Swiss economy at first sight. Yet the Raiffeisen SME PMI indicator appears to signal the exact opposite, with the gauge marking at 49.8 in August (prior: 53.3), the first time since July 2018 as most SMEs confirm that a stronger Swiss Franc as well as uncertainties surrounding the world economy remain alarming. The underlying index of backlogs points at 49.3 (prior: 55.4), its worst level since inception of the indicator while production stays flat, a poor release that underlines a negative outlook for SMEs. Under current circumstances, haven CHF is expected to remain tilted to the downside short-term amid today’s US Labor Day while coming events of should change the direction strongly.
