Market Roundup
• China to slap additional tariffs on $16 bln of U.S. goods.
• Fed's Barkin says U.S. interest rates need to rise further.
• Hard to see how Brexit will improve Britain's trade position - BoE's McCafferty.
• China, Germany defend Iran business ties as US sanctions grip.
• Saudi-Canada row could further rattle foreign investors eyeing kingdom.
• U.S. Treasury proposes tax rules on pass-through.
• US w/e Mortgage Market Index, 342.5, 353.1 previous.
• US w/e MBA 30-Yr Mortgage Rate, 4.84%, 4.84% previous.
• CA Jun Building Permits m/m, -2.3%, 1.0% forecast, 4.7% previous, 4.8% revised.
• Star witness testimony ends under attack by ex-Trump aide Manafort's lawyer.
• Trump-backed candidates struggle to cross finish line in Ohio, Kansas.
Looking Ahead - Economic Data (GMT)
• 8 Aug 23:50 Japan Jun Machinery Orders m/m, -1.3% forecast, -3.7% previous
• 8 Aug 23:50 Japan Jun Machinery Orders y/y, 9.5% forecast, 16.5% previous
• 9 Aug 01:30 China Jul PPI y/y, 4.4% forecast, 4.7% previous
• 9 Aug 01:30 China Jul CPI y/y, 1.9% forecast, 1.9% previous
• 9 Aug 01:30 China Jul CPI m/m, 0.2% forecast, -0.1% previous
Looking Ahead - Events, Other Releases (GMT)
• 21:00 Reserve Bank of New Zealand announces Official Cash Rate and Monetary Policy Statement media conference.
Currency Summaries
EUR/USD is likely to find support at 1.1529 levels and currently trading at 1.1613 levels. The pair has made session high at 1.1619 and hit lows at 1.1571¬ levels. The euro hovered around the $1.16 mark against US dollar on Wednesday but failed to capitalise on a pause in the dollar's rally, while solid data out of China calmed nerves about recent Sino-U.S. trade tensions. The dollar has weakened since hitting a three-week high on Monday, when the prospect of a full-blown trade war increased demand for the currency. Traders say market sensitivity to trade war headlines has diminished and investors will want to see evidence the dispute is having real impact before they panic. China’s July trade data, the first since the United States imposed tariffs on $34 billion of Chinese imports on July 6, showed a faster-than-expected rise in China's exports and imports. The country's trade surplus with the United States was little changed. The dollar index rose as high as 95.417, near a more than one-year high of 95.652 hit on July 19, before dropping back to 95.058, down 0.16 percent on the day. Analysts see the dollar as needing a fresh catalyst to move above its recent highs. The index has struggled to break much above the 95.5 level, which it has tested multiple times in the past two months. The main U.S. economic focus this week will be Friday’s consumer price inflation report for July, which is expected to show a 0.2 percent increase in core inflation in the month.
GBP/USD is supported in the range of 1.2851 levels and currently trading at 1.2885 levels. It reached session high at 1.2895 and dropped to session low at 1.2851 levels. Sterling declined to its lowest levels in almost a year against the dollar on Wednesday as concerns about Britain's exit from the European Union weighed on sterling. The exodus began after UK trade minister Liam Fox said on Sunday there was up to a 60 percent chance the country could leave the European Union next March without a trade deal in place. There was no obvious trigger for Wednesday's big moves lower, but rather a building sense of investor anxiety as the clock ticks down towards a series of EU-Britain meetings starting in September with no agreement in sight. Pound was also being hit by a growing realisation that, after last week's Bank of England's policy meeting, UK interest rate increases were likely to be as limited as one a year and contingent on a smooth Brexit. The BoE raised rates from crisis-era lows last week, but few investors saw the increase as a vote of confidence in the economy with so much political uncertainty ahead. Sterling slumped half a percent versus the euro to 90.175 pence. The pound fell to as low as $1.2859 against the dollar. It was last trading at $1.2885 in the late US session.
USD/CAD is supported at 1.2960 levels and is trading at 1.3010 levels. It has made session high at 1.3121 and lows at 1.3005 levels. The Canadian dollar strengthened against its U.S. counterpart on Wednesday, with the loonie recovering from an earlier two-week low as investors decided that potential Canadian asset sales by Saudi Arabia will have a short-lived impact on the currency. The Saudi central bank and state pension funds have instructed their overseas asset managers to dispose of their Canadian equities, bonds and cash holdings "no matter the cost", after Ottawa criticized the arrest of a female activist, the Financial Times reported, citing sources. On Tuesday, the loonie reached its strongest in nearly eight weeks at C$1.2963. It benefited over recent days from data showing stronger-than-expected growth in Canada's economy in May and a record high for the country's exports in June. The price of oil, one of Canada's major exports, settled more than 3 percent lower after Chinese import data showed a slowdown in demand and as a trade dispute between Washington and Beijing escalated. Canada runs a current account deficit, so its economy could be hurt if the flow of trade or capital slows. The Canadian dollar was last trading 0.3 percent higher at C$1.3018 to the greenback, or 76.85 U.S. cents. The currency's strongest level of the session was C$1.3005, while it touched its weakest since July 25 at C$1.3121.
AUD/USD is supported around 0.7381 levels and currently trading at 0.7435 levels. It hit session high at 0.7439 and made session lows at 0.7390 levels. The Australian dollar strengthened against its U.S. counterpart on Wednesday as the head of the country's central bank sounded upbeat on the domestic economy, while strong Chinese trade data augured well for exports. In a speech in Sydney that homed in on a hot topic about the economic effects of rapid migration in Australia, Lowe said a growing population has boosted infrastructure spending after years of underinvestment and has made the country younger. He said it is one of the reasons for the RBA's optimism about the economy. Australia's population hit a record 25 million on Tuesday, almost a decade earlier than projected, largely led by overseas migrants including international students who stay back to live and work in the country. But while the RBA expects economic growth to average above 3 percent this year and next, it is not yet prepared to increase rates as it awaits a revival in inflation. The RBA left rates at 1.50 percent this week, marking two whole years with no move in interest rates the longest policy pause in its modern history. Australian dollar was also boosted after the price of steel rose to six-year peaks and in turn lifted the price for raw material iron ore, Australia's largest export earner. The Aussie dollar was firmer at $0.7432, having rallied 0.5 percent overnight, but faced tough resistance around $0.7440 and $0.7465.
Equities Recap
European shares dipped on Wednesday as poor corporate earnings in the pharmaceutical sector weighed on sentiment already soured by trade tensions, with Washington preparing tariffs on another $16 billion of Chinese goods.
The UK's benchmark FTSE 100 closed up by 0.7 percent, FTSEurofirst 300 ended the day down by 0.24 percent, Germany's Dax ended down by 0.2 percent, and France’s CAC finished the down by 0.4 percent.
The S&P 500 ended flat on Wednesday as energy share declines and trade jitters kept gains in check.
Dow Jones closed down by 0.18 percent, S&P 500 ended down 0.03 percent, Nasdaq finished the day up by 0.05 percent.
Treasuries Recap
U.S. Treasury yields held firm on Wednesday as investors bought a hefty chunk of the record $26 billion sale of 10-year notes, the second leg of this week's $78 billion in quarterly refunding.
The benchmark 10-year Treasury yield was 2.971 percent, marginally lower on the day. It touched a session low of 2.958 percent shortly after the auction.
Commodities Recap
Gold prices edged higher as the dollar gave up early gains on Wednesday, but the precious metal is expected to remain weak on rising U.S. interest rates and strong demand for U.S. Treasury bonds as a safe haven from global trade tensions.
Spot gold gained 0.2 percent at $1,213.14 per ounce by 2:36 p.m. EDT (1836 GMT), near $1,204 hit last week, its lowest since March 2017. U.S. gold futures settled up $2.70, or 0.2 percent, at $1,221 per ounce.
Oil prices slid about 3 percent on Wednesday as a trade dispute between the United States and China escalated further and after Chinese import data showed a slowdown in energy demand.
Brent crude futures fell $2.37 to settle at $72.28 a barrel, a 3.17 percent loss. U.S. West Texas Intermediate (WTI) crude futures fell $2.23 to settle at $66.94 a barrel, a 3.22 percent loss. The session low of $66.32 was the lowest since June 22.
