China’s currency weakens in dispute with US

China allows its currency to weaken escalating the trade war with the US, and a risk off attitude is taking over the markets.

Previous Day's Market Highlights

China allows its currency to weaken escalating the trade war with the US, global equities were down on the back of the Chinese Yuan moving to an 11 year low and breaking through that notable phycological barrier of 7 against the USD. The US has reacted by officially naming China a currency manipulator even though they came out last year and said they weren’t, last time this accusation was made, Bill Clinton was the US president.

Risk off feeling around markets mean USD, AUD + NZD (Antipodeons) are down and CHF + JPY (Safe Havens) are up. This is due to the escalating violence in Hong Kong as well as the rising US-China trade tensions.

GBP/EUR reaches fresh 22 month lows @ 1.0811, the pound remains on the backfoot following on from last week’s breakdown of negotiations between the UK and EU. Further weakness is being priced into the UK pound due to the political uncertainty, especially after reports that Boris Johnson has no intention of renegotiating a Brexit deal.

RBA rate statement and Interest rate decision was out in the early hours of this morning, they chose to keep rates unchanged as expected buy have slightly revised their monetary policy as they say ‘Rates to remain low for an extended period of time’ and that they will revise monetary policy ‘if needed,’ hinting that a next rate cut in Q4 seems to still be the most likely scenario.

GBP/EUR 1.0850 1.1246 1.0811 3.87%
GBP/USD 1.2158 1.2578 1.2079 3.97%
EUR/USD 1.1203 1.1285 1.1026 2.30%
GBP/AUD 1.7905 1.8041 1.7560 2.67%
GBP/NZD 1.8575 1.8960 1.8278 3.60%
GBP/CAD 1.6040 1.6438 1.5959 2.91%

Today's Market Highlights

FOMC member Bullard is due to speak about the economy and monetary policy at the National Economists Club Signature Luncheon in Washington DC. Investors will be keen to see his views on an upcoming rate cut as this is his first speech since the Feds landmark 25bps cut last week.

RBNZ monetary policy and rate statement at 4am tomorrow followed by a press conference at 5am, they appear set to ease policy with inflation still relatively benign and significant slack still in the labour market.

Market data is very quiet today so not much economic factors are expected to move the market. Eyes will remain on Brexit developments for GBP and geopolitical factors such as US-China trade tensions.

Short note on equities

US Markets DOW, S&P and the Nasdaq all down a massive 3%, Asian markets have bounced back but didn’t manage to completely recover before the Asian close. The pan-European STOXX 600 index fell 1% adding to a 2.5% fall on Friday, this saw its worst day so far in 2019. Oil started its recovery this morning after 3 straight days of losses. US 10yr treasury bond yields up by 4.7 bps to 1.755%. All these losses on the back of rising US-China trade tensions.

Today's Economic Calendar

Time Currency Release Consensus Previous
6:30am AUD RBA Rate Statement 1.00% 1.00%
6:00pm USD FOMC Member Bullard Speaks