Yuan Rebounds and U.S. Stocks Set to Rise Too

August 16, 2018

Equity losses early in Asia’s session were trimmed after an announcement  from China’s Minister of Commerce Wang Shouwen that China accepts the invitation from U.S. Undersecretary of the Treasury Malpass to resume trade talks. Talks broke down in June. A delegation of Chinese officials will visit the U.S. late this month for new talks, kindling some hope that an intensification of the tariff war might be averted.

The yuan is 0.6% higher against the dollar today and trading on the strong side of 6.90/USD. Yesterday’s conversation had centered around speculation that it would soon cross 7.0/USD. U.S. equity futures point to a solid rebound at the open.

Turkish President Erdogan had warned that his country would seek other allies, and Qatar has been the first volunteer, extending Turkey a $15 billion loan. This aid has lifted the beleaguered Turkish currency by 2.3% against the dollar.

Turkish industrial production dropped another 2.0% in June. On-year growth in industrial output has collapsed from 13.7% last December to 3.2% in June.

Relative to other currencies, the dollar has also fallen 0.8% against the Mexican peso, 0.3% versus the Brazilian real and Russian ruble, 0.5% vis-a-vis the Australian dollar, 0.2% against the euro and 0.1% versus sterling. The dollar advanced 0.2% against the yen and 0.1% against the loonie.

Share prices in the Pacific Rim closed down 0.7% on net in China and Singapore, 0.8% in South Korea, 0.5% in Hong Kong, 0.6% in Indonesia, 0.4% in India, 0.3% in Taiwan and 0.1% in Japan. Equities in Europe show a drop of 1.2% in Italy, where a bridge collapse in Genoa poses enormous political and economic challenges, but advances so far of 0.9% in Switzerland, 0.7% in Spain, 0.6% in the U.K. and France and 0.5% in Germany.

Reflected lessening risk aversion, 10-year sovereign debt yields rose 2 basis points in the U.S. and Britain and one bp in Germany. Japan’s JGB yield is flat.

Oil is marginally under $65/barrel. Gold firmed 0.1%, and other metals like copper climbed more than 1.0% today.

Japan’s seasonally adjusted customs trade balance unexpectedly recorded a second deficit in the last three reported months. The unadjusted trade balance also posted a deficit in July, amounting to JPY 231 billion versus a surplus of JPY 407 billion a year earlier. On-year export growth of 3.9% was slower than presumed, and imports jumped 14.6%. The bilateral surplus with the U.S. contracted 17.8%, as exports fell 5.2%, while imports from America rose 11%.

Euroland’s seasonally adjusted trade surplus slipped EUR 0.2 billion to EUR 16.7 billion, the smallest surplus in the first half of 2018. In spite of an EUR 18.1 billion increase in Euroland’s non-energy surplus during the first half of this year, the overall EUR 100.7 billion surplus in January-June was slightly less than the surplus of EUR 103.7 billion in the first half of 2017.

British retail sales volume rebounded 0.7% in July, three times faster than forecast, from a 0.5% slide in June. When excluding auto fuel, sales increased 0.9% last month and were 3.7% greater than in July 2017.

German wholesale prices stagnated in July but were 3.5% higher than a year earlier. That compares with an on-year increase of just 1.2% back in February-March.

The Bank of Norway’s key policy interest rate rate was again held steady at 0.5%, its level since a 25-basis point cut in March 2016, but a statement from the bank’s Executive Board warns that the “assessment of the outlook and balance of risks suggested that the key policy rate would most likely be raised in September 2018.” Officials expect climbing capacity usage to lift price and wage inflation back into target. The central bank rate had been reduced between 2011 and the aforementioned March 2016 cut by a total of 175 basis points.

Dutch unemployment dipped to 3.8% in July after four straight readings of 3.9%. At the start of 2018, the jobless rate was 4.2%.

Czech producer price inflation accelerated half a percentage point to 3.4% in July, highest in 89 months.

Australia’s jobless rate nudged lower to 5.3% in July from 5.4% in May-June and 5.6% in April. However, employment also slipped 3.9K, its first decrease since March. The labor participation rate slid 0.2 percentage points to 65.5%.

Mexico’s index of leading economic indicators stagnated in June, and the index of coincident economic indicators dipped 0.1%.

South African wholesale turnover was 0.5% lower in June than a year earlier.

U.S. data to be reported today include housing starts and weekly jobless insurance claims. Treasury-compiled capital flows in June, which were released late Wednesday, showed a huge $114.5 billion long-term inflow but an overall outflow in June of $36.5 billion.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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