Key Points and Outlook for August 9

8/9 (Thursday)

Japan-U.S. Trade Talks (Washington)

10:30　CNY　China CPI (Consumer Price Index)
17:00　EURECB Monthly Report
20:00　GBP　NIESR GDP Forecast
21:30　USDU.S. PPI (Producer Price Index)
22:00　MXN　Mexico CPI (Consumer Price Index)

8/10 (Friday)

02:00　USD30-year Treasury Auction
07:30　NZDManufacturing PMI
08:50　JPY　Japan GDP
10:30　AUDRBA Quarterly Monetary Policy Statement

Today’s Focus

Today’s focus points are 3 items + α.

1) Point,Japan-U.S. Trade Negotiations.

Japan is expected to advocate the importance of multilateral free trade agreements such as TPP (Trans-Pacific Partnership)and other FTAs!

The U.S. side is expected to push for entry into a FTA (bilateral free trade agreement) with Japan2-country free trade agreement)negotiations!

(Note: See Mizuho Securities)

As the negotiations’ content leaks out, I think dollar/yen will react.

It’s hard to imagine Japan gaining the upper hand in talks with the U.S.; it feels like the U.S. will push.

I think the market has already priced in some of this to some extent.

I expect USD/JPY to hold in the 110s.

USD/JPY – Time-frame Chart

2) Point,ECB Monthly Report.

I do not expect big surprises, but I think positive content is unlikely.

The euro is gradually becoming heavier at the top.

EUR/USD is at a solid bottom around1.5000, with limited rebound..

If the momentum of the event or political instability in Italy/Spain or Brexit negotiations with the UK pushes below 1.5000, there could be a large stop.

EUR/USD – Time-frame Chart

3) Point, Tomorrow morning’sRBA Quarterly Monetary Policy Statement announcement.

Recently they held rates for 22 consecutive meetings.

RBA Governor Lowe’s statements were as follows.

“If the economy remains on track, the next move will be up.”
“For the time being, there is no need to change rates.”

The statement notes that the economic outlook and inflation are moving gradually higher.

Concerns cited include the U.S.-China trade war and Shanghai stock market.

Whether this will be substantiated,whether surprises will come,I will be watching the quarterly financial report.

AUD/USD – Time-frame Chart

+ α to watch (caution): the Brexit negotiations have recently shown worrying signalsBrexit negotiations.

In both Europe and the U.S., despite the summer break, such political information is coming out, suggesting a highly tight situation.

The U.K. faces many problems,,with party conferences scheduled for late September..

Leadership challenges (Prime Minister change) or a dissolution election would likely be before the first week of September.

Additionally, issues like the Ireland border, hard Brexit, and another referendum are possibilities, so what might come is unclear.

The pound has fallen through a key level to its lowest in a year.

GBP/USD – Time-frame Chart

GBP/USD – Daily Chart

Beyond the U.K., it’s aboutU.S.-China trade war.

China has announced retaliatory tariffs on U.S. goods worth $16 billion to take effect from Aug 23, but due to differences in import volumes, China is at a disadvantage in the tariff war.

Yesterday’s trade balance, while in surplus, growth slowed.

The impact of tariff battles is starting to show.

Canada and Saudi Arabia also froze trade and investment, worsening relations.

Negotiations between Turkey and the United States also carry many concerns.

Overall, there are many factors pointing toward a risk-off tilt, so there is also a need to watch for risk-off yen buying.

Yesterday’s Review

Notable: GBP sell-off! JPY buy!

Looking back yesterday, RBA Governor Lowe’s comments were virtually uneventful.

New Zealand’s quarterly inflation outlook was revised up to 2.04% from 2.01% for the next two years, briefly lifting NZD.However, this morning’s RBNZ policy statement kept the official cash rate at 1.75%, and because the statement and the Governor’s remarks were dovish, NZD softened.

NZ Reserve Bank (RBNZ) Statement

“Policy rates are expected to remain at a very accommodative level for a substantial period.”
“We expect to keep the policy rate stable from 2019 to 2020.”
“There is a possibility that rates move up or down.”“If cost pressures rise, inflation expectations could be affected and inflation could rise more quickly.”“Over the past year, the labor market has tightened, and employment is broadly at a sustainable maximum.”“Unemployment is expected to gradually decline from current levels.”RBNZ Governor’s Remarks“The balance of risks to the RBNZ rate outlook is balanced in both directions.”“NZD exchange rate is lower, which will boost exports.”“NZD is close to its fair value.”
“If cost pressures rise, inflation expectations could be affected and inflation could rise more quickly.”
“Over the past year, the labor market has tightened, and employment is broadly at a sustainable maximum.”
“Unemployment is expected to gradually decline from current levels.”

RBNZ Governor’s Remarks

“The balance of risks to the RBNZ rate outlook is balanced in both directions.”
“NZD exchange rate is lower, which will boost exports.”
“NZD is close to its fair value.”
“Low inflation gives the RBNZ room to keep rates low for longer.”
“If growth slows below potential, there is a possibility of cutting rates.”

Going forward, the RBNZ’s responsibilities and policy decision methods are expected to be reformed.

From the statements and the Governor’s remarks, rate hikes seem distant.

Economic growth is also slowing due to immigration controls, etc.

Watch for downside in New Zealand.

NZD/USD 1-minute chart (RBNZ interest rate announcement)

NZD/USD – Time-frame Chart

Current positions and strategy

EUR/USD short is held; CAD/CHF long is also held.

From the Japan-U.S. trade talks, I plan to target pullback Longs when USD/JPY dips.

Yesterday’s notable speakers

Lowe, RBA Governor
“If the economy remains on track, the next move will be a rate hike.”
“For now there is no need to change rates.”

Tria Italian Economy Minister
“Next year’s budget should include fiscal reforms.”
“The Italian government has not discussed leaving the EU.”
“2018 GDP growth is +1.2%, 2019 is 1-1.5%.”

Conte, Italian Prime Minister
“Next year’s budget will be significant, dignified and bold.”
“Easing bureaucratic procedures will boost the economy.”
“The budget will include the fiscal reform package.”

Ministry of Commerce of China
“China will impose retaliatory tariffs on $16 billion of U.S. goods from Aug 23.”

Barrington, Atlanta Fed President
“Rate hikes should continue”
“Normalization is not complete”
“How high rates go depends on economic growth”
“Gradual rate hikes are understandable”
“Industry stakeholders are concerned about tariffs”

Saudi Arabia’s Foreign Minister Prince Jubeir
“Consider further measures against Canada”

Chinese Government
“Tariffs on U.S. goods worth $16 billion will be imposed from Aug 23 at 12:01.”“Tariffs will apply to 333 U.S. products.”
Chinese Foreign Minister Zhongshan

“A 25% tariff on $16 billion worth of U.S. goods is excessive.”
“China decided to impose equivalent tariffs on U.S. products in response.”

Kakafati, UK MPC Member
“Brexit referendum made Britain poorer; I wish there had been no referendum.”

Canadian Prime Minister Justin Trudeau
“Ottawa (Canada) continues to engage with Riyadh (Saudi Arabia).”
“Free and Liberal Foreign Minister Freeland had a long meeting with Saudi Arabia on Tuesday.”
“(Regarding whether Canada should apologize) Canadians expect their Prime Minister to speak out strongly on human rights.”