Thursday has been a highly volatile session, with the US$, stocks and oil all ending lower, while Gold spiked up by 2% after Donald Trump announced via Twitter that he will extend tariffs to all Chinese imports, with the escalation of the trade war to take effect on September 1. He announced that the new plan will cover $300 billion in Chinese goods, and will come on top of tariffs already imposed on $250 billion in imports from China. Ahead of Trump’s announcement, stocks and the dollar had been performing quite well, as the market had been digesting the outcome of the Fed’s decision to cut rates, and the DJI and S+P had been up by around 1% on the day before the sharp turn lower saw the indices finish the day down by around 1%. Oil fell by almost 8% at one stage, but ended down by 6%, while the Yen surged by 2% against the dollar in falling quickly by 200bp. The Aud$ was hurt by the announcement, and is currently struggling to hold on to US$0.6800.
The bond markets rallied strongly, with yields all heading sharply lower, where the US10Y is now at 1.9% and 10Y German Bunds are at new record lows of -0.44%. Note that industrial commodities are also lower, with Iron Ore falling 3%, which may further impact on the Aud$ today.
Earlier in the day the Bank of England left rates unchanged at 0.75% as widely expected, while the asset purchase target was also kept at Gbp 435Bio. Both decisions were made by a unanimous vote and the statement noted that “global trade tensions have intensified and global activity has remained soft.” BOE Governor Mark Carney offered a gloomy outlook by suggesting that the UK has a 30% chance of plunging into recession at the start of next year as the heightened uncertainty over Brexit drags down the economy. He added said business investment is stalling, with trade tensions and slowing demand in the global economy also having an impact on UK growth. In UK data, Carney’s view was underlined by the UK Manufacturing PMI, which was unchanged at 48.0 in July, above expectation of 47.7, but the lowest reading since February 2013.
Elsewhere, the EU Manufacturing PMI was finalised at 46.5 in July, revised up from 46.4 but down from June’s final reading of 47.6. In the individual EU states, the German manufacturing PMI hit 84-month low at 43.2, while Italy and Spain recovered slightly to 48.5 and 48.2 respectively, Ireland hit a 75-month low of 48.7 and France hit a 7 month low of 49.7.
Friday will kick off with the BOJ Minutes, which will then be closely followed by the June Australian Retail Sales (exp 0.3%mm) and Q2 PPI (exp 0.3%qq, 1.9%yy). Later in the day we get the EU Retail Sales (exp 0.2%, 1.3%), PPI (exp -0.3%mm, +1.2%yy), ahead of the US Jobs data -Unemployment Rate/NFP/Average Hourly Earnings. (exp 3.7%, +165K, +0.2%mm). Have a good weekend.
Economic data highlights will include:
Fri: BOJ Minutes, Australian Retail Sales, PPI, EU Retail Sales, PPI, US Jobs/NFP/Average Hourly Earnings data
Market moves, in brief:
FX: DXY 98.39 (-0.18%)
Bonds: US10Y; 1.900% (-5.78%), German 10Y; -0.457% (-4.10%), UK 10Y; 0.583% (-5.39%), Australian 10Y; 1.221% (+1.875%), NZ 10Y; 1.460% (+0.69 %), China 10Y; 3.208% (+0.78%)
Stock Indices: DJI; xxxx%, S+P; xx%, NASDAQ; xxxx%, EUStoxx50; xxxx%, FTSE100; xxxx%, Shanghai Composite; xxxx%,
Metals: Gold $1445 oz (+2.26%), Silver $16.32 oz (+0.37%), Copper $2.6655 lb (-0.02%), Iron Ore $112.02 per tonne (NYMEX) (-3.05%),
Oil: WTI $54.48 pb (-5.79%)
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