Gold Silver Reports (GSR) – With bond markets seemingly taking the summer off, the dollar is taking its lead from the direction of the yuan. Since the PBoC decision to raise the reserve requirement ratio last week, the yuan has stabilised but also has begun to edge a touch stronger against the dollar. This is cramping the move higher on the Dollar Index, which is latterly consolidating.
The tit-for-tat moves in this US/China trade dispute continues as China has announced the implementation of 25% tariffs on $16bn of US imports into China, on the exact day, 23rd August, as the US implements similar tariffs. This move by China has impacted on markets, as by targeting (amongst other things) fuel goods, the demand for US oil could be hit, and oil prices suffered a 3% hit yesterday.
The yen is also beginning to also find a bid ahead of US/Japan talks amid suggestions that the weakness of the yen will be a theme in the discussions over trade tariffs. Outside of the trade fears, the big forex fall guy is sterling, which has come under increasing pressure in the past week in spite of a Bank of England rate hike, political vices expressing increasing fears of a “no deal Brexit”.
Markets are having to price for this elevating potential. The Chinese yuan may also be finding support from the China inflation data for July which came in mildly above estimates, but broadly suggested that the tariffs are yet to take an impact on prices, with CPI slightly higher than expected at +2.1% (+2.0% exp, +1.9% in June) and PPI also a shade above at +4.6% (+4.4% exp, +4.7% in June).
Crude Oil dollars
Wall Street closed mixed in a day of consolidation yesterday, with the S&P 500 all but flat (-1 tick at 2857) and futures only +0.1% higher today. The Asian markets have been mixed, with a big rebound of almost 2% on Chinese equities, but the Nikkei -0.2% lower. In European markets, the outlook is equally mixed, with the weakness of sterling allowing a FTSE 100 rally to continue, whilst the DAX is marginally weaker. In forex, there is a slight air of dollar strength. However, the big mover on the day is the slide on the New Zealand dollar which has been smashed following a surprisingly dovish outcome from the Reserve Bank of New Zealand last night with the RBNZ surprisingly committing to keeping rates at record lows of 1.75% until 2020 as a result of disappointing economic activity. In commodities, with the mixed moves of the dollar recently, gold has managed to build a degree of support and this continues early today, whilst oil has stemmed the selling pressure overnight but has so far failed to make a serious recovery from yesterday’s sell-off.
Continuing the inflation theme, traders will be watching out for US factory gate inflation for July with the US PPI at 1330BST. Consensus expects headline PPI to stick at +3.4% (+3.4% for June) with core PPI expected to stay at +2.8% (+2.8% in June).