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US trade wars spark recession concerns

6th August 2019 Market Update

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🇬🇧 GBP –  Yesterday morning saw the release of services data in the U.K. for July in an otherwise quiet day on the data front. The figure beat expectations and gave the pound a small uptick, though this didn’t last long as Sterling found itself struggling again, falling to new lows against the euro. The pound was pressured following reports that EU said there is no basis for any further Brexit talks as changes suggested by the new Government including scrapping the Irish backdrop would be unacceptable.
The risk of a no deal Brexit is again on the cards as the EU is taking a hard stance on insisting the withdrawal proposal set by Theresa May is kept in place for a deal. However, this deal was voted down by MPs three times and is unlikely to pass through parliament in its current form. As such, the new government is urging the EU to rethink its refusal to accept any changes to the current withdrawal proposal.

Today, there is no U.K. data due as such markets will continue to monitor the Brexit situation.

🇪🇺 EUR – Data revealed that pessimism in investor confidence reached new highs in the Eurozone yesterday, in addition services data missed expectations for both Germany and the zone as a whole. Though this didn’t weigh on the Euro as it continued to appreciate against both the greenback and the pound.

Very quiet on the data front with only German factory orders today. The results have surprised to the upside following a disappointing reading the previous month.

🇺🇸 USD –  US-China trade wars escalated overnight as China allowed the Yuan to fall sharply against the dollar to record lows. It also halted imports of US agricultural products in what seems to be a direct retaliation to the unexpected announcement of fresh tariffs on China Last week. China denied any currency manipulation though President Trump expressed his annoyance using his social media tool of choice, twitter, to label China as a currency manipulator also adding that this move is a “major violation will greatly weaken China over time!” The news pushed stock markets lower as risk sentiment was definitely off. In addition, a widely watch treasury market recession indicator was pushed to the highest alert since 2007, 10 year yields fell to 1.714% yesterday prompting fears of a US recession. This in addition with disappointing non-manufacturing figures released yesterday, will likely put pressure on the Fed for further rate cuts.
Today, the Fed’s Bullard will be speaking this afternoon and given the recession fears markets will be watching out for any further rate cut expectations.

 

Summary:

GBP: Positive services data fails to lift pound as Brexit woes continue
USD: China trade wars drags markets lower
EUR: Investor confidence and services data disappoint


 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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