The Chinese central bank (PBOC) weakened the Yuan again on Friday, in the face of fresh US-China trade jitters on reports that the US delayed licenses to do business with China’s Huawei. The risk tones remained softer, as reflected by the declines in the Chinese stocks, US equity futures and Treasury yields. Meanwhile, the Japanese yen and gold, traditional safe-havens, traded on the front foot in the Asian trades.
The USD/JPY pair fell as low as 105.75 on risk-aversion and after the Japanese Prelim Q2 GDP surpassed market expectations. The Antipodeans, on the other hand, defied fresh Yuan weakness and mixed Chinese inflation figures. The Aussie defended gains above the 0.68 handle, having benefited somewhat from the Reserve Bank of Australia (RBA) Governor Lowe’s comments. Lowe said the Australian interest rates may hit the zero lower bound, although the central bank wants to avoid doing that. The Kiwi’s upside was, however, capped by the 0.65 handle, as oil prices extended losses.
Heading into Europe, EUR/USD consolidated its overnight recovery above the 1.12 handle, but risks remain skewed to the downside amid uncertainty around the Italian political scenario. The Cable steadied below 1.2150, awaiting the UK Q2 GDP release among other data for fresh direction.
Main Topics in Asia
RBA Updates
RBA’s Lowe speaks before the House of Representatives: Says its reasonable to expect a period of low rates.
RBA’s Lowe: Prepared to use unconventional policy if its warranted
RBA’s Lowe: AUD’s depreciation is helping the economy
RBA releases quarterly Statement on Monetary Policy: Repeating the same dovishness
RBA’s Lowe: No implications for the RBA from the RBNZ 50-point rate cut
RBA’s Lowe: International political tensions weakening global outlook
RBA’s Debelle: Can see the impact of lower AUD on parts of economy
Other Key Headlines
US delays Huawei licenses after China halts crop buying
White House considering ending China talks, sanctions if Beijing commits Hong Kong protest crackdown – OANN
RBNZ Gov: Too much too soon is better than too little too late
PBOC sets Yuan reference rate at 7.0136
China’s FM spokesperson: China to take all necessary measures to safeguard Chinese companies – People’s Daily
Bank of Japan cuts 3-5 year bond purchases for the first time since July 3 – Bloomberg
China’s CPI rises to 2.8% y/y in July, beats estimates
US treasury yield curve flattest since December 2018
Fitch affirms S. Korea’s rating at “AA-“, outlook “Stable” – KRW uninspired
Key Focus Ahead
Following an eventful Asian docket, markets buckle up for another busy session, as the EUR calendar offers plenty of event risks that may spur some volatility. The Swiss Unemployment Rate, due at 0545 GMT, will kick-off the dataflow, followed by the German June Trade Balance report at 0600 GMT.
The main focus will remain on the German exports figures amid US-China trade worries and Italian political risks, as a fresh Summer election looks inevitable now. Also, of relevance remains the data-dump out of the UK docket, including the Q2 GDP and Industrial Production, that could trigger fresh GBP moves.
In the NA session, the US Producers’ Price Index (PPI) will be reported at 1230 GMT alongside the Canadian Housing Starts and the key Employment data. Later in the American morning, Bakers Hughes will publish the US Oil Rig Count data, at 1700 GMT.
EUR/USD: Italian political uncertainty could cap gains
EUR/USD’s upside could be capped around 1.1250 on Italian political uncertainty. Italy-German yield spreads could rise sharply in EUR-bearish manner. A below-forecast German data could push the spot below key support at 1.1177.
GBP/USD: Modestly flat ahead of UK Q2 GDP
With the summer recess in the UK’s Parliament holding back the lawmakers from major drama, GBP/USD shows little reaction to US-China trade news while trading modestly flat below 1.2150 ahead of the London open.
UK GDP Preview: Recession headlines could send GBP/USD to new lows – Three scenarios
The UK economy has likely stagnated in the second quarter of 2019. A contraction may weigh on the pound. There are three straightforward scenarios for the figure and the reaction.
Canada Employment Preview: The balance is changing fast
July job creation to be below trend. Unemployment remains near 45 year low. Business sentiment down sharply in June and July. Statistics Canada will issue its Labor Force Survey for July on Friday August 9th at 12:30 GMT, 8:30 EDT.
Week Ahead – Key data to confirm massive stimulus is coming
Summer doldrums are unlikely to take place as investors keep a close on eye on the trade front and if continued economic data deterioration will prompt central banks aggressive call for action.
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