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This is a half-day for US markets, but that obscures the important shift in market thinking about the role of FX in the bigger picture of trade wars looming. Just as we have learned the first half doesn’t matter to all outcomes. The World Cup Belgium-Japan football match stands out as an underdog nearly steals the place of the favorite to win the tournament. Into the second half, the score was 0-0 and in the 52nd minute it was 2-0 Japan. Markets feel that way today as the CNY moves to 6.72 and reverses back to 6.68 as Chinese banks sell USD and the PBOC Governor Yi says the yuan will be kept at an equilibrium level. The threat of escalation in tariffs continues apace as the Trump administration moved against letting China Mobile enter the US telecommunications market, escalating tension before the US levies on $34bn of Chinese imports are set to take effect on July 6. The other half of the relief story today came with Merkel blinking on immigration and averting a gov
ernment crisis. This all makes clear that the respite for China promising to stop CNY moves is unlikely to be sufficient to hold back further doubts about politics and fear into Friday. However, it’s a half-day in the US and focus is on holidays not trade wars for now. The only kink to the entire story is in oil which remains bid and drives up inflation risks and policy mistakes from central bankers as they may just have to take away the punch bowl of easy money faster. Watch oil today for upside risks.
The Morning Track two-halves
- The Morning Track – Two Halves by Bob Savagehttp://trackresearch.com/articles/the-morning-track-two-halves/
This is a half-day for US markets, but that obscures the important shift in market thinking about the role of FX in the bigger picture of trade wars looming. Just as we have learned the first half doesn’t matter to all outcomes. The World Cup Belgium-Japan football match stands out as an underdog nearly steals the place of the favorite to win the tournament. Into the second half, the score was 0-0 and in the 52nd minute it was 2-0 Japan. Markets feel that way today as the CNY moves to 6.72 and reverses back to 6.68 as Chinese banks sell USD and the PBOC Governor Yi says the yuan will be kept at an equilibrium level. The threat of escalation in tariffs continues apace as the Trump administration moved against letting China Mobile enter the US telecommunications market, escalating tension before the US levies on $34bn of Chinese imports are set to take effect on July 6. The other half of the relief story today came with Merkel blinking on immigration and averting a gov
ernment crisis. This all makes clear that the respite for China promising to stop CNY moves is unlikely to be sufficient to hold back further doubts about politics and fear into Friday. However, it’s a half-day in the US and focus is on holidays not trade wars for now. The only kink to the entire story is in oil which remains bid and drives up inflation risks and policy mistakes from central bankers as they may just have to take away the punch bowl of easy money faster. Watch oil today for upside risks.
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Robert Savage
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