Marius Paun | London, UK | Senior dealer | Friday, 07th June 2019
The US dollar started the week on the back foot following growing speculation that a rate cut is back on the table at Federal Reserve. There is no end in sight for the trade dispute with China and its increasing impact on global markets is definitely making investors nervous. The week ended with disappointing non- farm payroll figures of 75K versus the expectation of 175k, which leads to the US dollar expected to lose value further.
Replying to repetitive accusations against his country’s policies, China’s foreign ministry said that every setback in trade talks is ‘due to US breaking consensus’. Amid stalling negotiations, it is unclear if China will devalue its currency in retaliation to US tariffs or employ a more targeted approach i.e. restrict exports of rare earths to the US (China accounts for more than 70% of global output).
Back in the UK on the Brexit front, Tory leadership contender Boris Johnson said if he gets in ‘we’ll come out of Europe with a deal or no deal by 31 October’. The no deal option is causing a lot of uncertainties within UK, which could possibly cause sterling to drop across the board.
European Commission reportedly has sent a letter to Italy blaming it for a violation of debt reduction rules and is preparing to apply a $4 billion fine.
Responding to this, Italian deputy prime minister Luigi Di Maio commented the EU made ‘absurd’ requests on investments. Away from domestic squabbles, economic fears spread as the European Central Bank signalled its readiness to embark on a fresh round of bond purchases. So we have a dovish signals from both the ECB and the Fed, but the euro is the currency currently coming out stronger breaking above 1.13 against the greenback.
In a move that was widely anticipated, the Reserve Bank of Australia’ cut cash rates by 25 basis points from 1.5% to 1.25% at its latest monetary policy meeting on 4 June. That represents a record low for Australia and is the first slash by the central bank since August 2016.
The decision was taken to support jobs growth, achieve inflation target as well as to deal with a weakening housing market.
Marius Paun | London, UK | Senior dealer | Wednesday, 05th June 2019
Gold tumbled to $1383 on the back of a stronger USD, following a positive meeting between Chinese and US Presidents over the weekend. Nonetheless the sell-off was rather short lived and a rebound soon followed with the precious metal pushing back above $1430 within two days. Hitting perfect technical retracement levels.
The highlight of the Trump-Xi meeting at G20 summit is that both sides have agreed to restart trade talks and there will be no new levies on Chinese goods. Meanwhile the focus shifted with and the US proposing to add more tariffs to $4 bln worth of EU goods.
China’s June Caixin Manufacturing PMI came in at 49.4 vs 50.1 anticipated. It is the second lowest reading since June 2016 showing a contraction in manufacturing as the overall economy slips further into the red. However Premier Li Keqiang was adamant earlier in the week that China will not resort to yuan devaluation.
ECB policymakers seemed confident they don’t need to add monetary stimulus in July preferring instead to wait for more data on the economy (no mention of QE). EURUSD was on the downside for the whole week testing lows of 1.12 at the time of writing. Meanwhile EU leaders agreed to appoint Christine Lagarde (the current IMF chief) as the next ECB President
OPEC agreed to extend the production cuts by an additional 9 months, concerned with the excess oil supply from the US. The trade truce is seen as bullish for global growth but the rally in oil prices was short lived as the markets came off the highs.
On Friday, the US nonfarm payrolls report showed 224k jobs were added in June, a lot higher than markets had anticipated. In reaction, the Dow fell 100 points and gold prices slipped below $1400 (hovering around $1415 before the announcement) amid a strengthening US dollar. Analysts were quick to speculate the numbers would now make it much harder for the Fed to justify a rate cut at the next meeting ( if it wasn’t for a meddling President who has three words in regards to monetary policy ‘cut cut cut’….).
The pound sterling started the week on the back foot due to ongoing poor UK data. It fell below the previously good support level of 1.25 USD after the US jobs report.