Trump Tweets on Trade Slam Equities and Lift the Dollar

May 6, 2019

On the presumed eve of high level U.S.-Sino trade talks, President Trump has threatened to raise the tariff on $200 billion of Chinese imports by 15 percentage points to 25% and to impose tariffs on $325 billion of other imports from China, and he set an or-else deadline of this Friday for a satisfactory deal to avert these actions.

The dollar in response rose overnight by 0.6% against the kiwi and peso, 0.5% relative to the yuan, Australian dollar, and sterling, 0.3% vis-a-vis the loonie and 0.2% against the Swiss franc, but the euro is steady, and the yen has climbed 0.3% against the dollar.

Share prices plunged 5.6% in China, 3.1% in Hong Kong, 3.0% in Singapore, 1.8% in Taiwan, 1.1% in New Zealand, 0.9% in India, and 0.8% in Australia.

Three markets are closed today: Japan and South Korea for Children’s Day and the U.K. for the early spring banking holiday.

European equities have also sold off, falling so far by 1.9% in Italy, 1.8% in France, 1.5% in Switzerland, and 1.4% in Spain.

It’s not clear now when the U.S.-Chinese trade talks will be held. Perhaps in response to the escalated trade tensions, China’s central bank announced another cut of reserve requirements on small to midsized banks that will free up an estimated CNY 280 billion (slightly more than $41 billion). This was the sixth such easing since the start of 2018 but the smallest since the initial one.

In other market developments, the 10-year Treasury yield is down 4 basis points, and its German counterpart slipped a basis point. WTI oil fell 0.7%, and the price of gold is marginally firmer.

A bunch more purchasing manager survey results for April were reported:

  • China’s Caixin services PMI edged 0.1 point higher to a 15-month high of 54.5, but the composite PMI fell 0.2 points to a 2-month low due to weak manufacturing.
  • Euroland’s services PMI fell 0.5 points to a 2-month low, and its composite PMI dipped 0.1 point to a 3-month low. The data are consistent with quarterly economic growth of 0.2%.
  • The composite purchasing managers indices of Germany and France improved to 2-month highs, but those of Spain (7-month low) and both Ireland and Italy (3-month lows) deteriorated.
  • India’s service sector PMI unexpectedly weakened, falling a full point to a 7-month low of 51.0. The composite PMI reading, 51.7, was below its long-term mean.
  • Hong Kong’ private PMI printed below the 50 level that separates improving from weakening operating conditions. At 48.4, that was the 13th straight reading below 50 but the highest since January, indicating a slower pace of deterioration.
  • The Standard Bank-compiled South African PMI rose 1.5 points and, at 50.3 in April, returned to above-50 territory for only the second time in at least 7 months.
  • Non-oil PMI scores rose to a 44-month high in Egypt of 50.8 and a 16-month high of 57.6 in the United Arab Emirates. The Saudi Arabian non-oil PMI remained steady at the 15-month high posted in March.

Retail sales volume in the euro area was unchanged in March from a month earlier following increases in the first two months of 2018. That resulted in a sharply reduced 1.9% 12-month rate of increase versus 3.0% in the year to February. The Sentix gauge of investor sentiment toward the euro area economy jumped 5.6 points to 5.3, a 6-month high.

Spanish unemployment declined 91.5k, or 2.8%, in April, producing a 38.7 year-to-date drop.

Spanish consumer confidence improved to an 8-month high in April, printing at 97.0 after 93.9 in March.

Retail sales in Hungary (+5.9% on year) and Romania (+9.2%) posted significant gains in March.

Real GDP in Indonesia contracted 0.5% last quarter, lowering the on-year growth rate to a 1-year low of 5.07%.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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