Just when U.S. markets seemed off to a slow Monday, the safe-haven action kicked into high gear before the session closed.
As in the previous week, trade tensions spurred a flight to safety, and the lower-yielding franc was the main beneficiary.
In contrast, the Aussie was in a sour mood as Trump threatened to impose more tariffs on $200 billion worth of Chinese goods.
- FOMC member Williams: U.S. economy in great shape, strong growth, and jobs market
- Williams: Inflation moving closer to target
- FOMC member Bostic: Expects only one more hike this year
- Bostic: Inflation overshoot of 2.1% isn’t too far from 2% target
- Bostic: Neutral policy rate at 2.25% to 3%
- Bostic: Has yet to see wages picking up, business sentiment dampened by trade war
- Trump to impose 10% tariffs on additional $200B worth of Chinese goods
- Ecuador trade minister: OPEC to discuss raising output to 1.5B bpd
Mixed FOMC commentary
A couple of FOMC voting members stepped up to the podium to share some thoughts on the economy and monetary policy. FOMC member John Williams took over retiring NY Fed head Dudley’s spot and gave a little pep talk on his first day.
Williams was upbeat in saying that the U.S. economy is in great shape, citing solid growth, a strong jobs market, and near-target inflation. The rest of his speech focused mostly on better supervision in the banking sector, as well as corporate governance and transparency.
FOMC member Bostic, on the other hand, sounded much more cautious in saying that he only foresees one more hike this year versus the general Fed consensus of two.
He explained that, while the U.S. economy is doing quite well, most of the growth factors are temporary. Bostic also warned that business optimism is starting to fade due to the tariffs announcements and that he has yet to see a pickup in wages.
Furthermore, Bostic projected that 2.25% to 3.00% would represent neutral rates and that the central bank could afford to let inflation overshoot to 2.1%, which really isn’t THAT far from their 2% target. He concluded:
“Should the recent data unfold in a manner similar to my outlook, I am comfortable continuing to move policy toward a more neutral stance—one where monetary policy is neither accommodative nor restrictive.”
More tariffs on China?
It looks like the Trump administration might be gearing up to fire another shot in its trade war with China as the Donald asked the U.S. trade representative to round up $200 billion worth of Chinese goods to slap 10% in tariffs.
In a statement, Trump said:
“After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced.”
Beijing has previously mentioned that it plans on imposing duties on several American exports, including crude oil, as it responded to the earlier set of tariffs announced by the U.S. last Friday.
Major Market Mover(s):
The franc outpaced the rest of its lower-yielding peers to take the top spot in a risk-off session.
USD/CHF slid from .9968 to a low of .9937, CHF/JPY is up from 110.91 to a high of 111.13, NZD/CHF tumbled to a low of .6887, and AUD/CHF plummeted to .7355.
AUDThe Aussie was the worst-performing currency for the day as escalating trade tensions between the U.S. and China could hit its commodity export sector the hardest.
It didn’t help that gold ticked higher after Trump’s statement. AUD/USD fell from .7450 to .7415, AUD/JPY fell to the 81.50 level, EUR/AUD ticked up to a high of 1.5665, and AUD/CAD slipped to .9783.
The Loonie was still on a weak footing as the OPEC meeting loomed, even though some reports suggested that the possible output hike might be smaller.
USD/CAD popped up to a high of 1.3217, CAD/JPY fell from 83.92 to 83.43, EUR/CAD is up from 1.5270 to a high of 1.5361, NZD/CAD is holding on to the .9150 level, and GBP/CAD bounced to 1.7519.
Watch Out For:
- 1:30 am GMT: RBA monetary policy meeting minutes (Review their latest statement here)
- 1:30 am GMT: Australian HPI q/q (-0.9% drop expected)