Trading news

US-China round 2; Japan shrinks

US–China round two
By Vincent-Frédéric Mivelaz

The USD/CNY pair will rise. Already it’s up (+1.48% month-to-date and +0.56% week-to-date) to 6.3695. After a first unsuccessful negotiation session in Beijing, China’s economic advisor Liu He is in visit in Washington to discuss trade further.. The meeting will be tough, since last week the USA requested China cut its $200-billion trade surplus by 2020, enforce intellectual property and shrink technology subsidies. The kicker: $150 billion in tariffs against China come into effect next Tuesday. Top of the agenda will be an attempt to increase US agricultural exports. President Trump’s attempt to calm the situation by lowering penalties against Chinese manufacturer ZTE vanished, after US lawmakers rejected that idea. Geopolitical tensions are rising: aside from the China friction, the Middle East is restive and North Korea is threatening a summit cancellation.

Japan shrinks
By Arnaud Masset

The Japanese yen dove yesterday, USD/JPY climbed to 110.45, the highest level since 2 February. We remain fundamentally long USD/JPY with the 114 level as medium-term target. Most of the move could be explained by a renewed sell-off in US Treasuries, which sent the 10-year yield to 3.09% and fuelled another dollar rally. Market participants are completely ignoring local developments in Japan and focusing on USD developments. Despite a contraction of the Japanese economy in Q1 (-0.2% quarterly versus 0.0% median forecast and +0.1% in Q3), the yen reversed losses partially as USD/JPY eased to 110.08, down 0.15% on the day.

Meanwhile, the US 10-year T-bill slid to 3.06%, down 3.7 basis points from yesterday’s high.

Mounting geopolitical tensions – the US-China trade war, the US unilateral withdrawal from the Iran nuclear deal, tensions in the Mideast and with the European Union over the Mideast – are not enough to depreciate the risk sentiment and trigger a yen recovery. A widening monetary policy gap between the US Federal Reserve and the Bank of Japan is all that matters right now. It cannot be ruled out that the Fed could slow down its tightening, but the BoJ is miles away from tightening, faced with stalling inflation and anaemic growth.

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Wednesday, 16 May, 2018 / 9:32

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