Dollar Hangs on to Recent Gains as US-China Tensions Enter Next Stage

  • There are a lot of moving parts regarding the US-China relations as we move deeper into the next mini-cycle of escalation; the dollar has hung on to its recent gains
  • Stimulus talks remain dead in the water; Trump signed four executive orders over the weekend, as expected
  • The UK labor market is likely to remain under stress; Norway’s July CPI surprised slightly on the upside
  • China July CPI and PPI came in slightly higher than expected Continue reading “Dollar Hangs on to Recent Gains as US-China Tensions Enter Next Stage”

Drivers for the Week Ahead

  • As of this writing, stimulus talks remain dead in the water; President Trump made a series of executive orders over the weekend, as expected
  • July retail sales data Friday will be the data highlight for the US; ahead of that, July inflation readings will be seen
  • US Treasury plans to sell a record $112 bln of bonds at this week’s quarterly refunding
  • Eurozone reports Q2 GDP revision and June trade Friday; UK has a big data week
  • Japan has a light data week; Australia reports July jobs data Friday; RBNZ meets Wednesday and is expected to keep rates steady at 0.25%

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EM Preview for the Week Ahead

The dollar got some traction against the majors towards the end of last week. This weighed on EM FX, with the high best currencies TRY, BRL, CLP, and ZAR leading the losers. We downplay risk of contagion from Turkey, but we acknowledge it will keep investors wary of the countries with poor fundamentals. Failure to pass the next stimulus bill in the US may weigh on sentiment as the week begins.

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Dollar Firm Ahead of Jobs Data as US-China Tensions Rise

  • Rising US-China tensions are adding to a risk-off vibe; the dollar has clawed back some of its recent losses but remains vulnerable
  • Today is the ostensible deadline for stimulus talks; July jobs data will be the data highlight of the week
  • Weekly jobless claims yesterday offer a glimmer of hope as we move into August; Canada also reports jobs data
  • Germany posted a strong set of export and IP numbers for June but imports disappointed; the situation in Turkey remains tenuous
  • Japan reported firm June real cash earnings and household spending; RBA released its quarterly Statement on Monetary Policy; Chinese exports surprised on the upside

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Sterling Shines as BOE Delivers Less Dovish Than Expected Hold

  • The dollar remains under pressure; weekly jobless claims will be the US data focus; the outlook for July jobs data tomorrow continues to dim
  • The US Treasury plans to sell a record $112 bln of bonds at next week’s quarterly refunding; talks on the next stimulus package continue
  • Brazil cut rates 25 bp to 2.0%, as expected; RBI kept its repo rate unchanged at 4.0%.
  • BOE delivered a less dovish than expected hold; Germany reported strong June factory orders; it appears that Turkey has pared back its defense of the lira

Continue reading “Sterling Shines as BOE Delivers Less Dovish Than Expected Hold”

EM FX Model For Q3 2020

  • EM FX has rallied steadily from the pandemic lows back in March
  • Given our constructive outlook on global growth, we believe MSCI EM FX should test the early March high near 1641
  • Divergences amongst the major EM currencies should continue
  • Our 1-rated (strongest fundamentals) grouping for Q3 2020 consists of TWD, THB, KRW, CNY, and MYR
  • Our 5-rated (weakest fundamentals) grouping for Q3 2020 consists of RON, ARS, LKR, TRY, and PKR
  • Since our model was last updated on November 18, it has done a relatively good job in identifying vulnerabilities within EM
  • Our next EM FX model update for Q4 2020 will come out in October

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Dollar Remains Under Pressure

  • Precious metals continued on their upward trend; the dollar remains under pressure
  • Reports suggest the White House and the Democrats hope to reach a deal by the end of the week; US and China have scheduled a review of the Phase 1 trade deal for August 15
  • ADP’s reading on July private sector jobs will be the highlight today; Brazil is expected to cut rates 25 bp to 2.0%
  • Eurozone reported mixed final services and composite PMI readings; Turkey’s short-term implied rates have come down after yesterday’s spike
  • Japan, Australia, and China reported final July services and composite PMIs; Thailand kept rates steady at 0.50%, as expected; Indonesia’s Q2 GDP came in worse than expected

Continue reading “Dollar Remains Under Pressure”