Yuan Pops the 7.000 Barrier Sending Risk Reeling

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Market Drivers August 5, 2019
USDCNY pops the 7.000 barrier
UK PMI beats
Nikkei -1.74% Dax -1.48%
UST 10Y 1.76%
Oil $55/bbl
Gold $1456/oz.

Europe and Asia:
EUR Sentix -13.7
EUR Composite PMI 53.2 vs. 53.2
GBP UK PMI Servivces 51.4 vs. 50.4

North America:
USD ISM Non Manufcaturing 10:00

The USDCNY rate soared past the 7.000 figure at the start of the trading week sending risk reeling as investors feared the escalation in the trade war between US and China.

With PBOC letting the currency depreciate past the psychologically important mark Chinese policymakers signaled that they were willing to raise the stakes after President Trump threatened to add another 10% tariffs on $300 Billion worth of goods in September. The Chinese government further ordered all agencies to refrain from purchasing US agricultural goods which could greatly hurt the already damaged Midwest states.

The news sent a tremor through capital markets with US 10 year yields plunging to 1.74% Gold hitting a multi year high of $1450 and USDJPY dropping below the 106.00 figure.

Japanese authorities are particularly concerned about the strength of the yen and if the cross dips below the 105.00 level it could greatly increase the odds of ending Japan’s export-dependent economy into a recession while exacerbating the county’s deflation problems.

The escalation of trade tensions, the non-ending protests in Hong Kong, the seemingly relentless move towards a no-deal Brexit and opening of a second front in trade war with Europe just as the region’s manufacturing sector is tipping into a recession could all combine into a possible recession in Europe and Asia and a marked slowdown in US growth in the H2 of this year.

Today’s price action suggests that markets are starting to fear just a scenario which bodes badly for risk currencies such as the Australian dollar which is within a whisker of its flash crash lows of .6750.

All capital markets will now be driven by political headlines as eco data will take a distant second place and volatility which has been moribund for months could now being to really spike.

Boris Schlossberg
Managing Director

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