Market Talk – August 20, 2019

ASIA:

A new report released from Australia highlighted Chinese military force in the region. The report suggests significant improvements in Chinese military capabilities that could overwhelm US bases in the region in a matter of hours. This may indicate that the US stranglehold of the region could be at an end. Perhaps the report was designed to encourage the like is Japan and US to invest more in improving military capabilities.

New US missile tests occurred weeks after they abandoned the missile control treaty. This has put China and Russia on alert as there could be another round of an arms race since the Cold War ended. The initial ban was on medium range missiles 500km up to 5,500km, mitigating the ability to fire missiles at short notice.

This morning the People’s Bank of China set its new loan prime rate to 4.25% hoping that it will promote company borrowing at the slightly cheaper rate. The deputy governor of the bank suggested that there was still more room to lower rates and that will be dependent on future economic growth.

Japan today released its second batch of high technology materials to South Korea as talks between the two governments are improving.

President Trump today asked Pakistani president Imran Khan to exercise restraint and reduce the tensions between them and India due to the Kashmir conflict.

The major Asian stock markets had a mixed day today:

• Shanghai decreased 3.09 points or -0.11% to 2,880.00
• Kospi increased 20.35 points or 1.05% to 1960.25
• ASX 200 increased 77.60 points or 1.20% to 6,545.00
• NIKKEI 225 increased 114.06 points or 0.55% to 20,677.22
• Hang Seng decreased 60.30 points or -0.23% to 26,231.54
• SENSEX decreased 74.48 points or -0.20% to 37,328.01

The major Asian currency markets had a mixed day today:

• AUDUSD increased 0.00162 or 0.24% to 0.67782
• NZDUSD increased 0.0011 or 0.17% to 0.6420
• USDJPY decreased 0.3260 or -0.31% to 106.2940
• USDCNY decreased 0.0050 or -0.07% to 7.0688

Precious Metals:

• Gold increased 11.65 USD/t oz. or 0.78% to 1,508.48
• Silver increased 0.32 USD/t. oz or 1.90% to 17.1773

Some economic news from today:

Hong Kong:

• CPI (YoY) (Jul) remain the same at 3.30%

New Zealand:

• GlobalDairyTrade Price Index increased from -2.6% to -0.2%

EUROPE/EMEA:

UK officials are set to miss most of the EU meetings next month as they gear up for a no-deal Brexit. The Guardian reported that more than to half of the UK officials will be relieved of duty to attend EU meetings and that will “unshackle” them to help prepare for any scenario. It is thought that the UK will only send officials to EU meetings where there are significant national interests at stake.

The released tanker from Gibraltar is finding it’s way back to Iran. However, the US released a warning to Greece not to assist the tanker in any way as it makes its way back. “We have conveyed our strong position to the Greek government on the matter, as well as all ports in the Mediterranean that should be forewarned about facilitating this vessel,” the State Department said.

The major Europe stock markets had a negative day today:

• CAC 40 decreased 26.91 points or -0.50% to 5,344.64
• FTSE 100 decreased 64.65 points, or -0.90% to 7,125.00
• DAX decreased 64.19 points or -0.55% to 11,651.18

The major Europe currency markets had a mixed day today:

• EURUSD increased 0.0025 or 0.22% to 1.1101
• GBPUSD increased 0.0046 or 0.38% to 1.2171
• USDCHF decreased 0.0034 or 0.34% to 0.9780

Some economic news from Europe today:

Eurozone:

• Construction Output (MoM) (Jun) increased from -0.46% to 0.00%

UK:

• CBI Industrial Trends Orders (Aug) increased from -34 to -13

Germany:

• German PPI (MoM) (Jul) increased from -0.4% to 0.1%
• German PPI (YoY) (Jul) decreased from 1.2% to 1.1%

Swiss:

• Trade Balance (Jul) decreased from 4.007B to 3.631B

US/AMERICAS:

The Federal Deposit Insurance Corp (FDIC) voted this Tuesday in favor of revising the Volcker Rule. Originally enacted under the Dodd-Frank Act, the Volcker Rule is intended to deter financial institutions from investing their own money in private equity funds and hedge funds. While the Volcker Rule will remain in place, the FDIC has cleared the way for banks to begin limited proprietary trading. The revision will need approval from the Federal Reserve and the Securities and Exchange Commission before it can be enacted.

Chinese import tariffs have had a negative impact on American steel. Since March when the tariffs were implemented, United States Steel Corp stock has sunk over 70%. The state of Indiana granted US Steel a $47 million tax break to ease pressures, but it seems insufficient as the company has announced plans to lay off hundreds of workers.

Vice President Mike Pence is warning China that their handling of Hong Kong could hinder future US-China trade negations. “For the United States to make a deal with China, Beijing needs to honor its commitments, beginning with the commitment China made in 1984 to respect the integrity of Hong Kong’s laws through the Sino-British joint declaration,” the vice president stated. Furthermore, he stated that China has perused economic and ethical policies that are “inconsistent with free trade.”

US Market Closings:

• Dow declined 173.35 points or -0.66% to 25,962.44
• S&P 500 declined 23.13 points or -0.79% to 2,900.52
• Nasdaq declined 54.25 points or -0.68% to 7,948.56
• Russell 2000 declined 10.84 points or -0.72% to 1,498.01

Canada Market Closings:

• TSX Composite declined 90.74 points or -0.56% to 16,213.31
• TSX 60 declined 7.12 points or -0.73% to 967.18

Brazil Market Closing:

• Bovespa declined 246.42 points or -0.25% to 99,222.25

ENERGY:

A drone attack on Saudi soil by Yemeni Houthis has set a fire at an oil and gas field that briefly halted production.

A report about Russian Crude exports show that Russian exports have dropped 24% to Germany’s for the first half of the year compared to last year. Germany, as a whole, imported 6.4% less than the previous year.

The oil markets had a mixed day today:

• Crude Oil decreased 0.05 USD/BBL or -0.09% to 56.0928
• Brent increased 0.36 USD/BBL or 0.60% to 60.2219
• Natural gas increased 0.006 USD/MMBtu or 0.27% to 2.2161
• Gasoline increased 0.0177 USD/GAL or 1.06% to 1.6852
• Heating oil increased 0.0221 USD/GAL or 1.21% to 1.8569
• Top commodity gainers: Silver (1.90%), Lean Hogs (1.56%), Live Cattle(1.87%), and Orange Juice (1.27%)
• Top commodity losers: Lumber (-1.59 %), Wheat (-1.50%), Feeder Cattle (-1.42%), and Corn (-1.30%)

The above data was collected around 14:55  EST on Tuesday.

BONDS:

Japan -0.23%(-0bp), US 2’s 1.51% (-3bps), US 10’s 1.56%(-4bps), US 30’s 2.05%(-4bps), Bunds -0.69% (-4bp), France -0.41% (-4bp), Italy 1.38% (-5bp), Turkey 15.87% (+39bp), Greece 2.01% (-1bp), Portugal 0.13% (-4bp), Spain 0.11% (-3bp) and UK Gilts 0.45% (-2bp).

• Spanish 3-Month Letras Auction decreased from -0.518% to -0.528%