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ICBC Financial Market Daily Review - July 19, 2018
 

I. Yesterday’s News
International News

1. Federal Reserve Chairman Jerome Powell's official line on U.S. trade policy is one of careful deference to the Trump administration, acknowledging it is outside the Fed's responsibility and that it might all turn out for the best. But in two days of congressional testimony and a broadcast interview last week the central banker also hinted the Fed may be more concerned about current trade tensions than it is letting on, as uncertainty reshapes business investment in ways that could alter the course of the economy and thus Fed policy.

2. "Manufacturers in all districts expressed concern about tariffs and in many districts reported higher prices and supply disruptions that they attributed to the new trade policies," the Fed said in its report. Elsewhere in the report, the Fed's contacts continued to note tight labor markets and a shortage of skilled workers, but wage increases remained modest to moderate. The price of key inputs rose further and some districts said that they expected pricing pressures to intensify further.

3. U.S. homebuilding fell to a nine-month low in June and permits for future construction declined for a third straight month, dealing a blow to the housing market as it struggles with a dearth of properties available for sale. Housing starts tumbled 12.3 percent to a seasonally adjusted annual rate of 1.173 million units last month, the lowest level since September 2017, the Commerce Department said. The percent drop was the largest since November 2016 and both single and multi-family home construction declined in June.

4. The European Union will impose duties from Thursday on Chinese electric bicycles in a move to curb cheap imports that European producers say are flooding the market. The European Commission, which is carrying out an investigation on behalf of the 28 EU members, decided that tariffs of between 21.8 and 83.6 percent should apply for all e-bikes coming from China, the EU official journal said. The duties are the latest in a series of EU measures against Chinese exports.

5. British inflation failed to rise as expected last month, potentially giving Bank of England policymakers pause for thought ahead of a widely expected interest rate hike next month. Despite motor fuel prices rising to their highest since September 2014, annual consumer price inflation held steady in June at 2.4 percent. The figure was at the bottom end of forecasts in a Reuters poll of economists who had expected to see the first increase this year, to 2.6 percent.

Domestic News

6. The statement issued by the Chinese Ministry of Commerce last week pointed out that the United States is launching a trade war not only with China, but also with the whole world. The escalating trade war has become the biggest "confidence killer" of the world economy, which will damage the hard-won momentum for recovery and destabilize the foundation of global economic growth, the spokesperson Hua Chunying said.

7. China summer grain output fell 2.2 percent or 3.06 million tonnes to 138.72 million tonnes in 2018, the National Bureau of Statistics said in a statement. The summer output dropped 860,000 tonnes and 2.2 million tonnes due to shrinking grain acreage and unit output per hectare respectively.

II. Market Overview
FX
1. Global Market

The dollar retreated from a three-week high on Wednesday as investors cashed in on gains the currency made after two days of testimony by U.S. Federal Reserve Chairman Jerome Powell reinforced a strong economic outlook. Against a basket of six major currencies, the dollar rose to a three-week high of 95.4 before settling around 95.08, up 0.2 percent. The dollar gained 0.43 percent against sterling as the U.K. currency was dragged to 10-month lows on weak inflation data and uncertainty over Britain's plans to leave the European Union. The dollar rallied to as high as 113.13 against the yen, its strongest since Jan. 9. It was last at 112.85, slightly down on the day. The euro fell 0.16 percent to $1.1640.

2. Home Market

China's yuan hit two-week lows against a broadly stronger U.S. dollar on Wednesday, , while midpoint rate weakened almost 100 bps to the lowest in 11 months. The dollar was higher across the board after the U.S. Federal Reserve Chairman Jerome Powell’s congressional testimony. gave an upbeat outlook for the U.S. Economy. But the local currency still held above previous lows of 6.72 per dollar before the dollar index crosses above its trading range, traders said.

Precious Metals

Gold prices steadied on Wednesday as the U.S. dollar eased off a three-week high, following an earlier drop in bullion to a one-year low as bullish comments from U.S. Federal Reserve Chair Jerome Powell boosted the greenback. Spot gold closed at $1,226.43 per ounce, after touching its weakest since July 14, 2017 at $1,220.81. U.S. gold futures for August delivery settled up 60 cents, or 0.1 percent, at $1,227.90 per ounce.

Commodities
1.Crude Oil

Oil prices rose on Wednesday after U.S. government data indicated bullish demand for gasoline and distillates, which overshadowed a surprise build in U.S. crude inventories and U.S. crude oil production hitting 11 million bpd for the first time. Brent crude futures rose 74 cents to settle at $72.90 a barrel, a one percent gain. The contract hit a session low of $71.19 a barrel, its lowest since April 17. West Texas Intermediate (WTI) crude futures rose 68 cents, or one percent, to settle at $68.76 a barrel.

2.Base Metals

Zinc chalked up its largest daily gain in a year on Wednesday, recovering from this week's one-year low on bargain hunting and falling inventories, while copper and lead hit one year lows as the dollar rose and trade tensions simmered. Three-month zinc on the LME closed up 3.5 percent at $2,027 a tonne, its largest one day gain since last August. Copper closed flat at $6,150 a tonne, having hit a year low at $6,080.

U.S. Treasuries
1. U.S. Bonds

U.S. Treasury yields were little changed on Wednesday with the yield curve remaining near its flattest in nearly 11 years as Federal Reserve Chairman Jerome Powell stayed on message about a healthy economy before a U.S. House of Representatives committee. The possibility of further rate increases pinned the two-year yield near its highest since August 2008. It was last 2.611 percent, down 0.4 basis point from late on Tuesday. The spread between two-year and 10-year Treasury yields was 25.80 basis points after touching 23.40 earlier Wednesday, its tightest since July 2007. The yield on the benchmark 10-year Treasury note was up nearly 1 basis point on the day at 2.871 percent.

2. Chinese bonds

Cash bonds in China’s inter-bank market fell on upbeat auction results of Treasury bonds and ADBC bonds. The overnight and 7-day repo weighted interest rates showed signs of turning down as the continuous injection of the central bank in open market gave a break to tightening liquidity due to the tax season, fueling demand in tier-1 and tier-2 bond market.

Stock Market
1. U.S. Equities

The S&P 500 rose to its highest in more than five months and the Dow climbed for a fifth session on Wednesday as solid earnings boosted financial and industrial stocks and reinforced expectations for a strong second-quarter reporting season. The Dow Jones Industrial Average rose 79.4 points, or 0.32 percent, to 25,199.29, the S&P 500 gained 6.07 points, or 0.22 percent, to 2,815.62 and the Nasdaq Composite dropped 0.67 point, or 0.01 percent, to 7,854.44.

2. Hong Kong Equities

Hong Kong shares fell slightly on Wednesday, with risk appetite curbed by renewed yuan weakness. China's yuan hit two-week lows against a broadly stronger U.S. dollar on Wednesday, breaching the key 6.7 per dollar level. A rising dollar raises concerns of capital outflows. The Hang Seng index fell 64.26 points or 0.23 percent, to 28,117.42, while the China Enterprises Index lost 0.13 percent, to 10,578.46 points.

3. China Equities

China stocks closed lower for the fourth consecutive session amid tightening liquidity. The composite Shanghai index is expected to test the support of previous lows at 2,691. The Shanghai Composite Index closed down 10.87 points or 0.39 percent at 2,787.26 points, while the blue-chip CSI300 index fell 0.52 percent to 3,431.32. The turnover of Shanghai A shares fell to 123.9 billion yuan from Wednesday’s 138.5 billion yuan.


(2018-07-19)
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