Market Roundup
• China says will hit back after U.S. proposes fresh tariffs on $200 bln in goods.
• Trade war could impede U.S. transport infrastructure growth-Fitch.
• U.S. Senate backs non-binding tariff measure, minor snub of Trump.
• US Jun PPI Final Demand YY, 3.4%, 3.2% forecast 3.1% previous.
• US Jun PPI Final Demand MM, 0.3%, 0.2% forecast, 0.5% previous.
• US Jun PPI exFood/Energy YY, 2.8%, 2.6% forecast, 2.4% previous.
• US MBA Mortgage Applications w/e, 2.5%, -0.5% previous.
• US Mortgage Market Index w/e, 372.6, 363.6 previous.
• US MBA 30-Yr Mortgage Rate w/e, 4.76%, 4.79% previous.
• US May Wholesale Invt(y) R MM, 0.6%, 0.5% forecast, 0.5% previous.
• CA BoC Rate Decision, 1.50%, 1.50% forecast 1.25% previous.
• ECB policymakers split on meaning of `through summer', and on timing of rate hike.
• EU and BoE clash over fate of financial contracts after Brexit.
• OPEC sees lower 2019 demand for its oil, points to return of surplus.
Looking Ahead - Economic Data (GMT)
• 11 Jul 22:45 New Zealand Jun Food Price Index, 0.0% previous
• 11 Jul 23:50 Japan Foreign Bond Investment w/e JPY, -293.4 bln previous
• 11 Jul 23:50 Japan Foreign Invest JP Stock w/e JPY, -299.8 bln previous
Looking Ahead - Events, Other Releases (GMT)
• 07:00 German Finance Minister Olaf Scholz speaks at the European Parliament about his plans to reform the euro zone in Brussels
• 07:30 Swedish Central Bank minutes from the monetary policy will be published in Stockholm
• 11:30 The European Central Bank publishes the accounts of its policy meeting of June 13-14 in Frankfurt
• 16:15 Fed's Patrick Harker speaks before the Global Interdependence Center Tenth Annual Rocky Mountain Economic Summit in Victor, Idaho
• N/A ECB President Mario Draghi and ECB Board Member Benoit Coeure participating in Eurogroup meeting in Brussels
• N/A Lebanon will host its 26th Arab Economic Forum. Lebanon Prime Minister Saad al-Hariri, Lebanon Central Bank Governor Riad Salameh and other senior economic and banking figures expected to speak about local and regional issues (to July 13) in Beirut
Currency Summaries
EUR/USD is likely to find support at 1.1628 levels and currently trading at 1.1673 levels. The pair has made session high at 1.1756 and hit lows at 1.1662 levels. The euro declined against the dollar on Wednesday after Washington threatened 10 percent tariffs on $200 billion worth of Chinese imports in an escalating trade conflict that has heightened worries that the euro zone economy could be hurt. U.S. President Donald Trump's threat overnight of 10 percent tariffs on another $200 billion of Chinese goods dampened hopes that Washington will eventually step back from the escalating row. The clock now starts ticking on a two-month period of public comment before the levies are imposed. Trump has said he may ultimately target more than $500 billion worth of Chinese goods - roughly the total amount of U.S. imports from China last year. Traders focused their attention on where a ratcheting of Sino-U.S. trade tensions will have the biggest impact in China and in Asia, where countries including Australia depend on Chinese demand for their exports. The news of more possible tariffs comes days after Washington imposed 25-percent tariffs on $34 billion of Chinese imports, and Beijing responded immediately with matching tariffs on the same amount of U.S. exports to China. After initially showing little movement, the euro succumbed to selling pressure and was 0.4 percent lower at $1.1671 against the U.S. dollar. The dollar index rose 0.6 percent to 94.97.
GBP/USD is supported in the range of 1.3154 levels and currently trading at 1.3204 levels. It reached session high at 1.3273 and dropped to session low at 1.3199 levels. The British pound declined against the greenback on Wednesday as investors tried to gauge whether the resignation of two ministers over Prime Minister Theresa May's Brexit plans would affect an expected interest rate hike this summer. The currency's weakness was limited, however, as investors were wary of taking large bets before more clarity on the Brexit negotiations emerged. British trade minister Liam Fox said on Wednesday he did not believe Britain's new Brexit strategy would inhibit its ability to agree trade deals with countries around the world, after two cabinet colleagues resigned over the policy. Tentative signs of a recovery in Britain's economy after a sluggish spell have lifted expectations of an August interest rate hike to more than 60 percent from less than 50 percent two weeks ago. The resignations of Foreign Secretary Boris Johnson and Brexit minister David Davis on Monday rattled May's grip and stirred talk of a leadership challenge less than nine months before Britain is due to depart the EU. Sterling tumbled more than a cent. Even if May is safe, the big question for markets is whether EU leaders will go along with her Brexit plans as a new round of negotiations begins later this month. Sterling early in European session rose to as high as $1.3285 but rallying dollar knocked it back to $1.3202, down 0.2 percent on the day. Against the euro, sterling extended gains, spurred on by weakness in the common currency though it retraced later.
USD/CAD is supported at 1.3000 levels and is trading at 1.3207 levels. It has made session high at 1.3193 and lows at 1.3062 levels. The Canadian dollar weakened to a more than one-week low against its U.S. counterpart on Wednesday as broad-based gains for the greenback offset an interest rate hike by the Bank of Canada and the prospect of further monetary policy tightening. The U.S. dollar rose as the market put aside trade tension fears and focused on an expectation-beating inflation report, which increased prospects that the Federal Reserve will raise U.S. interest rates another two times this year. The Bank of Canada raised its benchmark interest rate by 25 basis points to 1.50 percent, the fourth hike since last summer.It said mounting trade tensions with the United States would have a larger impact on investment and exports than previously thought but it nudged up its estimate for second-quarter economic growth and pointed to rising inflation pressures. Money markets see a nearly 70 percent chance of further Bank of Canada tightening by December. Losses for the loonie came as the United States threatened tariffs on an additional $200 billion worth of Chinese goods, pressuring stocks and commodity prices. The Canadian dollar was last trading 0.7 percent lower at C$1.3206 to the greenback, or 75.72 U.S. cents.
USD/JPY is supported around 111.11 levels and currently trading at 112.01 levels. It peaked to hit session high at 112.28 and made session lows at 111.67 levels. The dollar strengthened against Japanese yen on Wednesday as the market put aside trade tension fears and focused on expectation-beating inflation report, which increased prospects that the Federal Reserve will raise interest rates another two times this year. China accused the United States of bullying and warned it would hit back after the Trump administration raised the stakes in their trade dispute, threatening 10 percent tariffs on $200 billion of Chinese goods. Expectation-beating inflation data propelled the dollar higher, save for a brief dip in midday trading caused by a jump in the euro. U.S. producer prices rose in June amid gains in the cost of services and motor vehicles, leading to the biggest annual increase in 6-1/2 years. The Labor Department data supports views of steadily rising price pressures, which could encourage the Fed to increase interest rates twice more this year. Rising rates would curb inflation and increase the value of the dollar. Wednesday saw strong flows into the dollar/Japanese yen trade, continuing a trend that began after the United States last week reported decent employment data and a pickup in wages. The dollar strengthened against the yen to a top of 112.00, its highest since Jan. 10.The dollar strengthened 0.94 percent versus the Japanese yen at 112.03 per dollar.
Equities Recap
European stocks fell on Wednesday as an escalation in the U.S.-China trade dispute brought a six-session winning streak to an end.
UK's benchmark FTSE 100 closed down by 1.29 percent, the pan-European FTSEurofirst 300 ended the day down by 1.27 percent, Germany's Dax ended down by 1.44 percent, France’s CAC finished the day down by 1.32 percent.
U.S. stocks fell on Wednesday, breaking a four-session streak of gains after Washington's threat to impose tariffs on an additional $200 billion worth of Chinese goods fanned trade war fears, while a sharp drop in oil prices hit energy shares.
Dow Jones closed down by 0.86 percent, S&P 500 ended down by 0.55 percent, Nasdaq finished the day down by 0.70 percent.
Treasuries Recap
U.S. yields slipped on Wednesday as growing trade tension between China and the United States contributed to high demand for an auction of 10-year notes.
The spread between 5-year and 30-year Treasuries dipped below 19 basis points for the first time since 2007. The spread between 2-year and 10-year notes also touched a fresh low at 26.29 basis points.
U.S. benchmark 10-year yields were 2.8 basis points lower at 2.845 percent, and 30-year bonds were quoted at 2.946 percent at 3:30 p.m. EDT (1920 GMT).
Commodities Recap
Gold prices slipped on Wednesday as U.S. threat of tariffs on an additional $200 billion of Chinese goods pushed safe-haven flows to the U.S. dollar and dashed hopes that Washington would eventually step back from the escalating row.
Spot gold gained 0.9 percent at $1,243.57 per ounce by 1:34 p.m. EDT (1734 GMT), earlier sinking to an eight-day low of $1,242.55.
U.S. gold futures for August delivery settled down $11, or 0.9 percent, at $1,244.40 per ounce.
Global benchmark Brent crude oil had its biggest one-day drop in two years on Wednesday as escalating U.S.-China trade tensions threatened to hurt oil demand, and news that Libya would reopen its ports raised expectations of growing supply.
Brent crude fell $5.46, or 6.9 percent, to settle at $73.40 a barrel. The decline was the largest one-day move on a percentage basis since Feb. 9, 2016. U.S. crude fell $3.73, or 5 percent, to $70.38 a barrel.
