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Greenback stable as trade tensions ease after G-20

Albert Edwards
by Albert Edwards on July 03, 2019


USD stable after President Trump said trade talks are “back on track” with China and any new tariffs are on hold. Trump also offered to ease restrictions on tech company Huawei and China will buy more U.S. farm products. Tensions have eased between the world’s two largest economies and this positive outcome was better than markets expected. Meanwhile, the Federal Reserve will continue with plans of a possible rate cut this month (despite positive trade developments). The personal consumption expenditure price index increased 0.2% in May (as expected) and reinforced expectations of a 25bps rate cut. China Premier Li said the economy has faced downward pressure from slowing global conditions. Construction spending in May decreased 0.8% (versus 0.1% gain expected). This week’s focus is on the Unemployment Rate for June (available Friday).

Canadian dollar highlights:

CAD stronger after the Bank of Canada’s Business Outlook Survey showed that Canadian firms expect an increase in sales growth this year. Economic data also supported the central bank to remain stable and not cut interest rates. Canada’s economy grew by 0.3% in April (faster than 0.1% expected). Oil prices remain high after a trade truce between U.S. and China; however, OPEC agreed to extend supply cuts (until the end of 2019) and this will affect oil prices lower. Unemployment Rate for June also available on Friday.

Euro highlights:

EUR defensive after Eurozone factory activity was lower than expected. Unemployment Rate for May was 7.5% (lower than expected 7.6%) and June Inflation Rate remained at 1.2% year over year; meanwhile, Core Inflation increased 1.1% (previously 0.8% in May). Despite this positive data, the European Central Bank is still expected ton cut interest rates; however, policy makers “aren’t yet ready to rush into additional monetary stimulus at this month’s meeting”. Any further monetary policy decisions may occur after current President Mario Draghi’s term ends in October. Meanwhile, the U.S. proposed mote tariffs on European goods in the Airbus-Boeing dispute. Producer Prices for May was -0.1% (versus 0.1% gain expected) and Retail Sales available Thursday.

British pound highlights:

GBP weaker and defensive due to increased concerns the U.K. may still leave the European Union with no deal. British manufacturers also experienced the largest decrease in activity in more than six years in June (due to Brexit uncertainty and global trade tensions). Bank of England Governor Mark Carney said that a rate hike is needed if Brexit is approved. Boris Johnson refuses to rule out suspending parliament to force a no-deal Brexit; meanwhile, parliament was unable to vote on a motion that could have blocked a no-deal. The Conservative Party will elect a new leader by the end of July and the Brexit deadline is October 31.