More Tariffs on Chinese Exports, US CPI Below Expectations
The US dollar overall weakened on Friday around the time CPI data was released, which was slightly below expectations. With the trade conflict between the US and China continuing to escalate the Chinese yuan (CNH) reached its weakest level against the dollar this year. While the USD/CNH currency pair is mostly relatively stable, since the tariff announcement a week ago the pair moved by 2.4%.
After a mixed performance in stocks on Friday, most markets faced further losses by Monday morning, including US index futures. As the trade conflict between the US and China is seen to be escalating, with US President Trump hinting at even further tariffs on Chinese imports, China also announced that it would take countermeasures, which are yet to be announced.
Relatively few data releases are scheduled for Monday. Investors might be watching especially on the development of the situation in China and around the Persian Gulf. After the US hit Chinese exports with significant tariffs, Beijing is expected to announce measures taken to retaliate this move, with analysts expecting multiple measures to hit in turn the US economy and sectors like agriculture. Four commercial ships, of which two were Saudi Arabian oil tankers were hit by what was referred to as ‘sabotage’ close to the United Arab Emirates. Further escalations of regional conflicts could follow once more details of these acts emerge.
With the dollar retreating from its relatively stable position seen at the beginning of the previous week, the EUR/USD pair hit a 10-days high. While the currencies were rather unmoved by the strong German trade balance or the weak industrial production figures from both Italy and France, a significant uptick was seen around the time the US consumer price index (CPI) was released. The CPI fell to 2% y/y below expectations of a rise towards 2.1%.
Multiple key economic indicators from the euro-zone are expected to be released this week. For Tuesday the German CPI and the ZEW survey on current conditions and business expectations is expected. The EU will also publish data on industrial production from March. Later this week data on German and EU GDP, French CPI and also the European trade balance will be published.
Bitcoin and now also other cryptocurrencies rallied over the weekend, with the Bitcoin rally getting resistance only around the level of $7,500 and later stabilizing around the $7,000 mark by Monday morning. Other cryptocurrencies like Litecoin and Ethereum also were up by double-digit percentages on a weekly basis, with Ethereum now also reaching a new year-to-date high and a market capitalization above $20 billion. According to BitInfoCharts the number of Bitcoin transactions in the first days of this month was the highest in more than a year, almost at the level seen around the peak of the hype at the end of 2017.
One possible reason for this regained increased interest in this sector might be reports that institutional investors like Fidelity are reported to enter in this sector. Later this month the US Securities and Exchange Commission (SEC) is set to review further applications for cryptocurrency ETF.
Oil prices closed marginally lower on Friday, which was however still enough to end the week with moderate price gains after the price per barrel declined over the course of the past two weeks. Markets could have been driven by political events with different directions, which might have offset the move. On one hand the breakdown in trade talks between the US and China and the US imposing a significant amount of new tariffs on Chinese imports is said to have potential to slow down the Chinese but also global economy and thus could have adverse impact on the demand on energy commodities like crude oil. On the other hand however, the tensions in and around the Persian Gulf are escalating as Arabian Gulf countries announced acts of ‘sabotage’ against four commercial ships near the United Arab Emirates with two ships reported to have sustained significant damage. At this time no further details on the acts and the possible responsible parties were disclosed. The United States recently announced to relocate additional warships to that region to counter what is perceived a threat by Iran.
On Tuesday the American Petroleum Institute (API) will publish weekly crude oil inventories data, followed by the inventory data on crude oil, gasoline and distillates from the Energy Information Administration (EIA) on Wednesday.
On the last trading day of the week, US stock indices closed marginally higher, while still maintaining painful losses on a weekly basis following the implementation of further tariffs by the United States following the announcement by US President Donald Trump on the previous Sunday.
With the Uber following its competitor Lyft by just a little more than a month with its IPO, two of the major US ride-hailing app companies are now publicly traded. However, results for both were rather disappointing, with Lyft (-8.08%) stocks crashing to a new all-time low, shedding almost 30 percent of value compared to its IPO valuation of $72 per stock. Uber’s IPO went also by far not as good as expected. The IPO price of $45 per share was already below the expected range around $46 to $48, but the share closed even below $42. Some analysts criticise that these so-called “unicorn” companies (pre-IPO) have a significant amount of cash expenses with uncertainty when actual profitability will be attained.
More earnings releases are expected this week from companies like Cisco and Alibaba on Wednesday and Walmart and Nvidia on Thursday.
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