Nervousness in China

Daily Analysis - 03/07/2018

Risk sentiment down on trade war fears

The euro recouped the prior day’s losses as German Chancellor Angela Merkel avoided a coalition split. The question is whether Merkel’s deal with her Interior Minister Horst Seehofer is merely a pause and not an end to the infighting in her government.

Euro gains

The euro jumped higher on a relief rally after Angela Merkel managed to avoid a breakup of her coalition government that arose due to her Interior Minister Horst Seehofer disagreeing with a Migration Policy that was struck at the recent EU Summit. Merkel’s deal calls for setting up holding centers at the German border for refugees already registered in other European Union countries. Seehofer seems to have reached a compromise with the Chancellor. EURUSD traded above $1.1650 earlier this morning.

Chinese yuan weakest since August 2017

Both the onshore and offshore yuan reached key levels after weakening again today, resulting in the intervention of the Chinese central bank to halt the currency’s fall. The PBOC governor said the bank was closely watching recent fluctuations in FX market caused by a strong US dollar and uncertainties surrounding trade. He reassured markets that China’s financial risks are under control and that the PBOC will keep the CNY stable and at a reasonable level.

WTI oil edges higher

Crude oil creeps higher and reached above $73 a barrel. Overnight news that Libya, a large oil producer, has suspended exports from two of its key ports. The ADP inventory report will be closely watched late today. Other data due today include UK construction PMI and U.S. durable goods orders.