Trump remarks trigger risk-off market? ~Key points and outlook for August 31, 2018~

◎ Today's notable events

8/31 (Friday)

Italy rating release (Fitch)

10:00  CNY  China Manufacturing PMI
15:45  EUR  France CPI (Consumer Price Index)
16:00  CZK  Czech GDP
17:00  NOK  Norway unemployment rate
18:00  EUR Italy HICP (Consumer Price Index)
18:00  EUR Euro area HICP (Consumer Price Index)
18:00  EUR Euro area unemployment rate
19:00  EUR  Italy GDP
23:00  USD  University of Michigan Consumer Confidence

9/1 (Saturday)

02:00  EUR DeGuindos, ECB Vice President Speech
02:00  USD  Baker Hughes rig count
07:30  AUD  Australia Manufacturing PMI

◎ Today's focal points and outlook

1) Trump’s comments and European risk

Recently President Trump has seemed to make many remarks about China. In the US-China context, additional tariffs of about $16 billion were enacted. Trades talks (deputy level) resumed but yielded no particular results. Today’s remarks suggest consideration of additional tariffs worth about $200 billion as well. However, today’s statements target not only China but also the EU.Tariff issues are also flaring up with the EU. Trump’s remarks are one of the factors contributing to risk-off sentiment. Summary on EU tariffs is below.

Has the euro fallen!? Risen!? – Euro’s bear factors at a glance

2) NAFTA negotiation deadline?

One of this week’s focus currencies has been the Canadian dollar. Canadian data yesterday was disappointing, but the CAD decline seems unlikely to be lasting. Yet this week CAD gains were largely due to progress in NAFTA talks. A deal with Mexico and near-agreement with Canada are positive factors. Today is said to be the NAFTA negotiation deadline. If Canada fails to reach an agreement, CAD could reverse its gains.

CAD gains! CADJPY could break out of a triangle pattern!?

3) Brexit negotiations’ direction

Recently, progress in Brexit talks boosted the pound. However, counter-statements to calm expectations from key figures have also appeared.

EU Chief Negotiator Barnier
“We must be prepared for all options regarding Brexit (UK’s withdrawal from the EU)”
“Even a no-deal Brexit must be included in preparations”

Even after these remarks, the pound did not fall. Today too, remarks on Brexit are anticipated. See previous article on the pound.

Pound surges! Background to Pound rise linked to Barnier’s Brexit remarks

4) Emerging market currencies decline

Turkish lira’s slide is affecting other EM currencies. Argentina, Brazil, India, South Africa, etc., all EM currencies are falling, Argentina has hiked rates dramatically!　 to 60% from 45% . However, the Argentine peso continues to weaken. The Turkish lira is approaching the low reached in the recent rout.

In response to this EM weakness, markets feel uneasy. The prevailing trend is risk-off, with demand for safe-havens (franc, yen, USD), gold, and government bonds increasing.

The main trigger is Turkey, where the Central Bank Vice Governor has resigned. Today is Turkey’s market reopening. Watch how markets react.

◎ Positions and strategy

CAD/JPY Longs some additional positions have been partially taken profit. Core positions remain. For core positions, a break-even stop is placed and held.

Others are hedged/square.

Today’s plan is to wait and see since it’s the month-end!

◎ Yesterday’s notes

30 most major currencies strength/weakness chart

US 10-year yield chart

Japan 10-year yield chart

Germany 10-year yield chart

Italy 10-year yield chart

Spain 10-year yield chart

Greece 10-year yield chart

Turkey 10-year yield chart

South Africa 10-year yield chart

Brazil 10-year yield chart

Canada 10-year yield chart

Yesterday’s remarks

US Department of Commerce
“ Exemption for South Korea and Brazil on steel tariffs, and for Aluminum tariffs for Argentina”

Barnier, EU Chief Negotiator
“We must be prepared for all options regarding Brexit”
“A no-deal Brexit is also included in preparations”

Fitch Ratings
“There is essentially no possibility of Italy leaving the euro”
“Italy’s reforms are becoming markedly more difficult”

Ministry of Commerce of China
“Even if the US acts, China’s economy will continue to expand stably”
“Some domestic companies are affected by the trade war”
“Stable trade will be maintained, we believe”
“US hardline measures and threats will not work on China”
“Hope the US makes the right decision on new tariffs”
“We are engaging constructively with the US on current trade issues”

Aso Taro, Deputy Prime Minister and Finance Minister
“Protectionist measures and inward-looking policies do not benefit anyone”

Freeland, Canadian Foreign Minister
“Remain optimistic about NAFTA renegotiations”

Warren Buffett, American investor
“Powell is a very fine Fed Chair”
“Better to own stocks than 30-year bonds”

Donald Trump, US President (some reports)
“Support for imposing $200 billion in China tariffs next week”
“Consider linking capital gains tax to inflation”
“Not regretting appointing Powell as Fed Chair”
“EU auto tariff zero proposal is not enough”
“US trade with EU is as bad as with China”
“China is attempting to devalue its currency”
“The US may designate China as a currency manipulator”