Here are the latest developments in global markets:
FOREX: The US dollar index is nearly 0.2% higher on Monday, in the aftermath of the US jobs report on Friday, which was slightly softer than consensus expectations, but still relatively strong overall. Meanwhile, the Japanese yen, attracted some safe-haven flows on Friday, ending the day higher across the board after China unveiled a list of $60bn worth of US goods it plans to impose tariffs on.
STOCKS: Wall Street closed higher on Friday, undeterred by the US and China exchanging another round of tariff threats. The Dow Jones gained 0.54%, while the S&P 500 and the Nasdaq Composite advanced by 0.46% and 0.32% respectively. Futures tracking the Dow, S&P, and Nasdaq 100 suggest these indices are set to open higher today as well, albeit marginally so. Asia was mixed on Monday, with Japan’s Nikkei 225 and Topix declining by 0.08% and 0.56% correspondingly, but the Hang Seng in Hong Kong climbing by 0.33%. In Europe, futures tracking the major benchmarks were mostly in the green, pointing to a higher open today. The only exception was the British FTSE 100.
COMMODITIES: Oil prices are slightly higher on Monday, recouping some of the losses they posted on Friday as fresh trade-war headlines clouded the outlook for oil demand. WTI and Brent crude are up by 0.22% and 0.17% respectively today. News on Friday that Saudi Arabia’s production likely fell by 200k bpd in July, and a small decline in the number of active US oil rigs, likely helped to offset any greater losses. In precious metals, gold prices are practically flat today around the $1,213 per troy ounce mark, after posting some modest gains in the previous session. That said, the yellow metal continues to trade within breathing distance of its lows for the year, with investors continuing to favor the Japanese yen and US bonds as safe-haven plays when trade-war headlines hit the wires.
The dollar managed to close the day higher against the euro and pound on Friday, even despite the US employment data for July being a touch softer than projected. While wage growth and the unemployment rate were both in line with expectations, jobs growth disappointed somewhat, with nonfarm payrolls clocking in at 157k instead of the anticipated 190k. That said, last month’s print was revised notably higher, offsetting some of the disappointment. Overall, the report was still consistent with a robust US labor market, keeping in play the prospect of two more quarter-point Fed rate hikes before year-end.
Meanwhile, the trade war narrative came back to the spotlight on Friday, after China unveiled a list of $60bn US goods it plans to impose tariffs on, in retaliation to the US plan to slap levies on $200bn worth of Chinese imports. The Japanese yen – which is widely considered a haven asset – was propelled higher by the headlines, while yields on US bonds fell across the maturity spectrum as investors flocked to safety. Surprisingly though, major US stock indices managed to escape largely unscathed, implicitly signaling that the situation is not dire enough yet for investors to lower their exposure to equities amid a strong earnings season. Focus is likely to remain on any developments, particularly considering that this week is relatively light in terms of data flow.
Elsewhere, sterling/dollar continues to hover just above its 11-month lows, as a combination of cautious monetary policy signals and ever-increasing uncertainty around Brexit continues to weigh. Regarding the latter, UK international trade secretary Liam Fox said over the weekend that the chance of a no-deal Brexit is now – in his view – greater than the likelihood of reaching a deal. The pound, however, reacted little to his remarks.
Lastly, the closely watched yuan, especially in light of trade developments, reentered a path of declines versus the US currency after posting considerable gains on Friday that allowed it to move away from its lowest since May 2017. Friday’s gains came after the PBOC made it more difficult (costly) for speculators to short the Chinese currency. The offshore yuan was 0.1% weaker against the greenback on Monday.
Monday’s calendar is light, featuring the Sentix index that gauges investor morale in the eurozone. Meanwhile, the Sino-US dispute over trade continues to generate attention.
The eurozone’s Sentix investor confidence index for August is due at 0830 GMT. The index is anticipated to stand at 13.5, reflecting an improvement compared to July’s 12.1; if indeed delivered, this would constitute the second straight month that morale would appear to rise in the euro area. Trade tensions have been a factor weighing on eurozone investor sentiment in the past, with the recently held constructive meeting between Juncker and Trump possibly paving the way for a rosier outlook in terms of investor confidence.
China proposing retaliatory tariffs on $60 billion worth of US goods on Friday confirmed that the world’s second largest economy does not intend on simply giving in to US demands and actions against it. Thus, it looks like the trade war saga has still room to run, with developments likely to act as catalysts for positioning in FX and other markets.
USDJPY has retreated from Wednesday’s two-and-a-half-week high of 112.14, though it continues trading within the relatively narrow range established from late August onwards. The RSI has been hovering around the 50 neutral-perceived level in recent weeks, supporting the case for a neutral short-term picture for the pair.
Intensifying US-China trade tensions may see the yen receiving safe-haven flows, hence USDJPY declining. Support to a falling pair could come around the 111 round figure; the current level of the 50-day moving average line at 110.73 lies not far below, with the one-month low of 110.58 from July 26 also being within sight in case of steeper losses. Further below, the 110 handle would increasingly come into scope.
Easing trade concerns on the other hand could see USDJPY rising. The region around last week’s two-and-a-half-week high of 112.14 – including the 112 level – might act as resistance, with the attention next falling to the seven-month high of 113.16 hit on July 19.