Volatile markets welcome investors back after the long weekend. US tariffs on Chinese goods went into effect September 1st, with China responding with tariffs on Crude. Chinese govt has also lodged a complaint with the World Trade Organization. Not surprisingly China & US have still not agreed to a date this month to resume trade talks, which has impacted currency markets. Over the weekend HK protests continue and data out of China showed further weakness in manufacturing. US$ remains firm, Yen rallied, Euro & GBP are sitting at 2 year lows and CNY testing near 12 year lows. Watch for US PMI data today.
Oil prices weakened on delayed resumption of trade talks, weak data and prospect of rising OPEC output. C$ weakened, breaching 1.3350 and has potential for further weakness to 1.3560 (May19). The Bank of Canada meets tomorrow and suspect that rates could be kept on hold. On going trade dispute will continue to keep pressure on C$. If BOC keeps rates flat, it may present opportunities to buy US$ dips.
The weekend saw Chancellor Merkels coalition election victory retaining power, but identifying growing populist right in Germany. ECB meets next week, but anticipation of further easing and greater stimulus needs is putting pressure on EUR. Italy’s new government is expect push through a 2020 budget and demand review of EU fiscal rules. Eur remains weak, a break of 1.0840 (May17) could see possible extension to 1.0340 (Jan17) low.
UK PM ultimatum to lawmakers to back him or face a snap election caused GBP to sell off to lows of 2016. A break of 1.1450 vs US$ could see new lows not seen since 1985 of 1.0790. GBP bounced this morning after the speaker of the House of commons confirmed that an application for an emergency Brexit debate has been tabled. 58 days to Brexit dead and expect GBP to remain volatile.