Market update: Employment data pleases the Dollar, Chinese retaliation underdelivers

6 Aug

by Mihály Tatár

 

Good Morning!

 

  • July’s US monthly employment figures came out as pretty solid – the unemployment rate dropped to 3.9% –  a Japan-style figure -, and investors noted with relief that that those nasty hourly earnings didn’t accelerate from 2.7% Y/Y. (Good for stocks, less great for wages).  Also with the less-than-convincing Chinese retaliation (angry editorials about ’the population being able to endure economic hardship’, ’the US trying to force China to be an economic vassal’, while threatening with tariffs on 60 billion USD of imports on US goods, just when being forced to raise the reserve requirement from 0% to 20% on FX forward deals to protect the Yuan), stock market sentiment remained mostly positive (SPX +0.46%, Nasdaq +0.12%, DAX +0.55%, Nikkei +0.01%, Shanghai -0.76%), and the USD rally continued relentlessly: EURUSD 1.1550, GBP 1.2990 – according to UK Trade Secretary Liam Fox, the probability of a no-deal Brexit is now 60%, amid the UK, despite having stated that it doesn’t care, now pulling every string in the EU to avoid it. Regional currencies were well supported (EURHUF testing the other side of 320, EURPLN 4.261 – so far not reacting to EU Budget Comminissioner Oettinger’s latest episode of his never ceasing quest to strip Poland from its right to vote in the EU, EURCZK 25.64 – with traders acknowledging Fitch’s upgrade of the Czech Republic to AA-). The Turkish Lira was less fortunate and cascaded even lower (TRY 5.12), and Bitcoin ran into trust issues again (-13% in three days to 7083 USD), after the scandal broke out that a large wrong-way bet left a trader unable to cover his losses, burning his counterparties in the tune of 400 million Dollars. (But hey, isn’t it great that its unregulated!)

 

  • US Secretary of State Mikeo Pompeo warned that the Iranian sanctions will be fully enforced ’to deliver maximum pressure’ (he used to be a tank commander, I tend to believe him), and showing how tense the situation became in Teheran, the leading Forex official of the central bank has been arrested together with several brokers. (The brutally long list of sanctions – no US banknotes, no USD transactions, no steel, aluminium, coal, mineral, automotive and debt trading – return today. If anyone remembers, ’Trump is all talk and nothing will happen regarding Iran’ – was the mantra of analysts last  year. One has to wonder what will be the next phase when the November mid-term elections are out of the way.) In the meantime, Saudi Arabia froze all new trade and business deals with Canada, even expelling the Canadian ambassador (the row is over the arrest of a human-rights activist. But don’t worry Justin, everyone fears you so this will be solved easily.) Oil traders, for now, did little and kept waiting for fresh news on the US reserve selling (WTI 68.60, Brent 73 USD).

 

 

Have a nice week,

Mihály

 

 

P.S. Dear Readers, due to a short holiday the next Update will be published on the 13th of August.

 

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