Tickmill UK Daily Market Notes


Tickmill Representative
Hello traders,

This thread is devoted to daily market digest from Tickmill team. Let's stay tuned with latest market events together!

Our latest note:

Will Draghi´s speech kill the momentum?

Acknowledging the economic success of the Eurozone while holding back the rally of the common currency – a problem that is increasingly becoming unsolvable for the ECB. Investors are waiting for confirmation of their bullish expectations from Draghi, and they are bracing for the regulator’s meeting quite confidently – the pair EUR/USD resolutely surpassed the level of 1.24 on Thursday. It seems that the market forces the ECB to disclose details of the restraining measures and in order to not cause volatility in the markets, Mario Draghi will probably choose neutral rhetoric, which, if not reduce the Euro, will at least place bar for further growth.

The weak Euro is the only simple yet effective tool for boosting inflation, which is currently at ECB’s disposal. Capital investments (it is useful to recall high economic sentiment in the Euro area) and the increase in export orders are the only solid causes for the output rebound, while consumption remains depressed. Production and consumer inflation are a good reflection of this situation:

It is obvious that the strengthening of Euro will slash profits of European companies in Euros while also hitting the competitiveness of European goods on the international market. This can slow the recovery of GDP, worsening economic sentiment in the business environment, and also jeopardize the large-scale incentive program conducted in the post-crisis years. Until the consumer inflation will not give clear signals to the growth, weak Euro is critically important for the growth of the Eurozone economy, therefore, the ECB will try its best to prevent the buildup of long positions in the national currency. In the relative pace of recovery, some countries in the Eurozone, for example, Germany, are ahead of the US, so capital flows will seek the Old World, reinforced by speculative rates on the growth of the Euro. In this situation, Draghi just has to take a wait-and-see attitude, repeating that the amount of asset buying will remain unchanged while using verbal interventions, indicating that strengthening of the Euro may impede economic growth. If Draghi does not say so, investors will not give up their plans to move the capital to the European market.

However, in general, until recently, consumer inflation has been quite indifferent to the strengthening of the European currency. However, its resilience relative to the exchange rate factor is applicable only to the leading countries of the bloc, such as Germany, while this may suppress growth in the economies of weaker participants. The need to take care of the stability of growth in the entire block is the reason why the ECB looks as cautious as possible in its position.


Private, 1st Class
By the way, there is still a rush among traders on the international market. They prefer it. Sales and purchases are in good volumes there.


Tickmill Representative
An uneventful Fed decision for August
The Federal Reserves’ policy decision came without major surprises and saw muted response on instruments that are usually not so warm to such events – EURUSD, USDJPY, Gold, Treasury bonds. Of the significant changes in the wording of the statement, we can note a “strong” growth in economic activity, instead of a “solid”, that is, a bullish bias in the position of the regulator is growing. After the meeting, futures on the federal funds rate pencilled in a 92% probability of an increase in September, compared to 80% before the meeting.

The August Fed meeting appears to not have significantly impacted the dollar, as the expected pace of rate hikes didn’t change much compared to the June meeting. In the technical picture on DXY in the medium-term plan, we see a notorious summer sideways move, with a consolidation at level 94.50, which will change to a trend probably closer to the end of August. Then Trump will slap with a new 25% tariff on 200 billion Chinese goods, while China promises to pay back in kind.

Data on the Chinese current account for the second quarter may show that first half of the year will be negative for China. This will be the first half-year of the “big factory” in 17 years (since China joining the WTO) when it exported less goods than it has imported. Specific numbers are not quite important, but instead the fact that surplus has turned into a deficit indicates that the Eastern giant is beginning to experience problems.
For the first half of 2018, the deficit is likely to be small, about $24 billion. Interestingly, most of it was accrued in the first quarter (34 billion), as a result of a sharp increase in imports of raw materials and oil and aggressive acquisitions abroad. Moreover, Beijing’s official data includes only acquisitions made by companies located in China, while purchases by their “daughters” abroad are not included in the calculation. The American Enterprise Institute (AEI) indicates that Beijing may have missed the “hidden deals” by about 60 billion:

This is at odds with the view that overseas acquisitions have fallen due to tightening of regulation in China, aimed at increasing the number of strategically important deals.

With the growing number of “red numbers” in Chinese statistics, and especially with the loss of the “surpluses” in data, it is clear that the GDP forecast will be lowered. Immediately, Trump threatens the second round of tariffs at the precise moment, because along with the fall in optimism about Chinese growth, the yuan will face some pressure next Monday and Tuesday. Similarly, China’s stock market, which is moving to the second support test of 2700 (ShComp) / Gold that is tightly following the yuan, is also likely to suffer. It’s not that Beijing can surrender, but on the eve of tariffs it’s worth to be very attentive to the news about the return to high-level negotiations between the two countries.



Tickmill Representative
An analysis in favour of a weak NFP: searching for weaknesses in the US economy

First of all, I want to note: after the Fed characterized the growth of the economic activity in the US as "strong" at a meeting on Wednesday, it is unlikely that any economic report will surprise the market, even if it beats the forecasts. Therefore, today's report does not hold much hope, the general Fed tightening course comparing to other Central Banks is now a sufficient driver of growth for the dollar. But do not assume that a negative deviation in the report will also pass unnoticed.

The case below is in favor of the second option.

The US economy probably maintained a high rate of hiring in July, the ADP report released on Wednesday showed. The growth of jobs according to an unofficial estimate amounted to 219K jobs, which exceeded the forecast of 186K. The indicator of employment from the ISM changed insignificantly in July compared to the previous value to 56.5 points. Values above 50 characterize the economy in a state of recovery.

High consumer optimism in July (127.1 points) indirectly indicates a possible improvement in pay and a rise in vacancies, since consumers usually closely associate their well-being in the future with rising incomes and the ability to change jobs.

As for the jobless part of US nation, in July we see the following change of unemployment benefits:

"Fresh” unemployment (initial applications):

Note: the blue line is the actual reading, the purple line is the forecast.

In July, the rate of initial unemployment claims was below projections throughout the month. This suggests that the pace of transition from the category of employed to the unemployed declined faster than expected, which is undoubtedly good for economy. This could indicate one of two things – either the working conditions are good, and wages are sufficiently high which could mean that people are less willing to leave the jobs, or the forcedly stay at work, which is certainly unlikely. In the second scenario, the rate of layoffs is also growing, so if the economic situation worsens, the indicator of initial claims will grow more rapidly.

That is, according to the initial claims report, July proved to be very successful for the labor market.

Now let’s take a look at the “old” unemployment (continued claims):

Almost all of July the indicator exceeded the estimate. It turns out that finding new job or starting to work was harder for unemployed than expected. Given that some economic reports such as ISM Employment or PMI indicators warned of a growing labor market deficit, a weak indicator of continued claims indicates a "disconnect" in supply and demand-side qualifications. That is, employers, for example, make demand for workers of high qualification, and the labor supply is mainly represented by low-skilled labor force (it often happens). There is an interesting point: this structural problem will hinder the growth of wages.

As you know inflow into the labor force (population 16-64 years) is about 100K per month in the US (supply increment). We add to this number the part of labor force who turned into unemployed and claimed for unemployment benefits first time. It turns out that in order not to widen the deficit in the labor market, the remaining new jobs, roughly speaking, should be covered, by reduction in the "old" unemployment (continued claims). We do not take into account the slight fluctuations in the level of participation in the labor force.

Let's take a look at the change of continued claims for the last three months:

In May – the indicator decreased and was mainly below the forecasts, that month BLS released reports on the growth of employment in almost all sectors. In June, the indicator was also better than expected, with a continued decline, BLS reports a reduction of 21K jobs in the retail sector. In July, we see that the indicator is worse than the forecasts, so we can assume that the Labor Department will indicate a reduction in activity or lack of expansion in several sectors. The forecast for pay and the increase in jobs are respectively moderate.

Sector reports will be useful to study in the context of Trump tariffs, for example, slowing employment growth or layoffs in industries that have already been affected by tariffs (for example, steel). It is possible to single out the following sectors, which use steel intensively:

  1. Construction
  2. Transport and mechanical engineering
  3. Infrastructure for Energy
  4. Packaging
  5. Household appliances
For June, in all sectors as a whole, we see job growth.

The impact of tariffs has not yet been traced in terms of employment. But as the accommodation is gradual, the reduction in the use of labor cannot follow immediately, and we will explore July for the reaction of firms to tariffs in terms of hiring. Along with the Fed’s bullish position, it is also worth recalling the statements by Powell that “small US firms already feel the tariffs. This is not visible in the aggregated data, but signs of economic discomfort will show up gradually. ”

Today, I’ve presented the case in favor of a weak NFP, which could hinder the growth of the dollar. In general, everything seems to be working out alright for the US economy, and there seems to be no reason for worries, but “smart money” is probably already in search of the first signs of weakness, isn’t it?


Tickmill Representative
Turkish turmoil pauses but uncertainty is high
USDTRY retreated today from the record highs reached on Monday, as the speculators’ attack ended with profit taking, investors started analyzing the CBR’s measures to stabilize the foreign exchange market.

Yesterday, “hot money” sent the lira in knockout to the level of 7.24, the maximum since the revaluation of the lira in the past decade. Today the main issue is the nature of the pullback – the debate focuses on whether it occurs on the grounds of a retreat of the Turkish crisis and emerging markets in general, or because traders took a halt before resuming pressure on the lira. It is interesting that the rate of the CDS after the end of last week’s takeoff did not follow the rollback of the lira, stabilizing at the level of 540 points:

This suggests that either the fears about defaults on Turkish bonds remain high or that the strengthening of the Turkish currency is the result of the Central Bank’s actions.

Yesterday’s plan of the regulator included reducing the reserve ratio by 4%, an increase in repo auctions, in which banks were given short-term currency liquidity against government bonds. Also, banks will be able to increase the borrowing of foreign currency deposits for a month, in addition to loans for one week.

However, it is obvious that emergency measures will not be able to solve the systemic problems of Turkey – the impressive deficit of the current account, the inadequate level of the Central Bank’s currency reserves and the ideological opposition of President Erdogan to standard monetarist ideas for stimulating the economy. Turkey’s gold reserves fell sharply from 582.2 tons in the first quarter to 236 tons in the second quarter. Foreign exchange reserves in May amounted to 130 billion dollars and probably also fell sharply in recent months. Erdogan called interest rates “evil”, so the prevailing market consensus that Turkey can help short-term rate increase by 10% is probably not realized.

The publication of the CBR’s plan to save the lira failed to convince foreign capital to return to Turkish bonds – the yield on 10-year treasury bonds (TR10Y) only halted the explosive growth, falling from a peak of 22.580% on Monday to 22.415% on Tuesday. This once again proves that investors are waiting for concrete decisions from the government of Turkey on long-term stabilization of the economy.

Chinese economic data released today did not meet expectations, retail sales and industrial production grew by a lower value than anticipated. Key growth drivers are starting to undermine the Chinese economy which is giving more leakage because of trade tensions with the US. The growth of capital investments, the key leading indicator for Chinese production, grew by only 5.5% instead of the expected 6.0%. Usually companies increase their investments in fixed assets when they expect the increase in demand for their products, but in China there is a reverse trend.

Economic reports, however, contributed mildly to fears over the Chinese economy and did not cause additional weakening of the yuan. USDCNY is in a narrow range, close to the maximum of 6.90 and the return of the markets to a trade dispute with the US is likely to lead to further downturn, because ahead of us is a series of events related to the escalation of the conflict, and not its resolution. In particular, this decision of China on the tariffs for 16 billion US exports to China, which will be adopted on August 23. At the end of this month, news on the new Trump tariffs for 200 billion Chinese goods is expected.

The pound sterling failed to get a positive recharge from the labor market’s; job growth and wage growth did not live up to expectations. The British currency is trading near the opening against the dollar at 1.2770. The absence of signs of inflationary pressure on the wages front, unfortunately, sets weak expectations for tomorrow’s inflation despite a sharp weakening of the pound. The chances of growth in the British currency are declining.

Eurozone production data and improvement of ZEW optimism indicators could not help the euro, as the European currency is now concerned about the situation in Turkey, especially after the Central Bank expressed concern over the consequences of the Turkish crisis on the European territory. The euro could probably win back some of the losses against the dollar, but this could be a short-term relapse.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.


Tickmill Representative
Initial Dollar move on Powell speech may be reversed.
On Friday, Federal Reserve Chairman Powell delivered a speech at the meeting in Jackson Hole. There were no surprises in the speech, all the comments were aimed at emphasizing the Fed's gradual approach to tightening the policy. The content of the speech in many respects echoes the opinion of the Federal Reserve in the Minutes for July meeting, where officials also expected the continuation of significant economic growth, and since "there were no increased risks of overheating," the process of "gradual normalization of the policy will remain to be appropriate."
In light of the CPI increase to 2.4% in July, that is, above the target level of 2%, the phrase "we did not notice signs of accelerating inflation above 2%" was a little disappointing and signaled the sale for the dollar. The report for the most part became a bearish catalyst, which was also reflected in the upside move of US stock indices
Powell said that there are reasons to expect that good economic performance will persist for some time.
The speech was like a lesson of theoretical macroeconomics, as Powell began to discuss the Fed's approach to monetary policy, which is based on the natural rate of unemployment (NAIRU). This is the next stage in the evolution of the Phillips curve, where the relationship between inflation and unemployment may vary depending on the level inflationary expectations.
Roughly speaking, the policy of the Federal Reserve consists in the theoretical definition of this natural jobless rate, then applying policy tools which as result pulls inflation to the desired level. The problem is that NAIRU is an unobservable value that can vary depending on the structural features of the economy. A nice example is a decline in labor productivity, economic mobility in the US or automation of production. If the Central Bank is pursuing a false level of NAIRU (for example, believes that it is below the true level), then its policy will ultimately lead to an increase in inflation expectations, where the inflation-unemployment relationship will move to another level.

The Fed’s natural unemployment rate is now set at 5%, while the latest actual figure is about 4%, that is, the regulator already allows the jobless rate to stay below NAIRU’s, thus biased to stimulus measure, rather than control which is fraught with the acceleration of inflationary expectations. According to the University of Michigan, in June, inflation expectations jumped to 3.0%:

In this case, the Fed would have to raise rates faster to prevent the acceleration of inflationary expectations, but the answer lies in the fact that the Fed does not want to interrupt the expansion of the economy too quickly:

Perhaps Powell just wanted to please Trump, after his recent discontent with the Fed’s work. After all, the request is essentially fulfilled. Now with a less aggressive Fed, Trump can more confidently attack China with new tariffs.

The short-term effect for the dollar is definitely negative, but given that the Fed is ready to support expansion by a gradual increase in rates, concerns about the volatility of the expansion of the US economy could subside. The growth of stock indices on Powell’s soft speech also allows room for breathing out, as the immediate threat of expensive loans had also receded the American firms. There may be an inflow of capital into dollar if data on GDP on Wednesday live up to elevated hopes.

The strengthening of the yuan on Friday, after the authorities announced the return of the counter-cyclical factor in calculating the “reference rate”, finally dispelled the myth of its intentional devaluation. The dollar also suffered from this news, while the strengthening of the yuan signaled a sign of stability in the region, and an end to the outflow from emerging markets. Today USDCNY added 0.32% at the time of writing, the dollar index is stable at 95.17, and with the approach of the date of possible introduction of new tariffs, the weakening of the Chinese currency is likely to resume. On Friday, we are waiting for important data on activity in the manufacturing and service sectors, the Chinese yuan remains very sensitive to these data, as history shows over the past few months.

Geopolitics remains a negative factor for the dollar as relations with North Korea are deteriorating again. Trump withdrew Pompeo’s visit to the country, in addition, North Korea accuses the US of wanting to overthrow the government in the country, along with a “smile on its face.” Against this background, gold can even add more, as well as other defensive assets. USDJPY fell today at 0.15%, gold is holding just above the opening.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.


Tickmill Representative
US Dollar waits for trade balance and GDP data to determine direction

American stock indices struggled on Monday at historic peaks, the S&P 500 safely beat its own record approaching the 2900 mark. Monday’s rise is largely a result of Powell’s speech who noted that during the expansion of the economy there is no need to rush to raise rates. As an example, he cited the policy of Alan Greenspan in the 90s, which, contrary to market expectations of the return of high inflation, chose to wait for reliable signals about this before raising rates.

The US deal with Mexico under the NAFTA agreement and the expectation that Canada will soon join it allowed the markets to shyly bet on improving the state of affairs in world trade. The Australian and Asian markets reacted positively to the news.

Rumours that the US hastened the EU with the settlement of trade disputes also had a positive impact on the appetite for risk. On Monday, the White House reported that Trump and Merkel had telephone conversations in which both sides supported the need to remove trade barriers. European markets closed in positive territory on Monday.

Positive shifts in trade on the American continent have not yet been extrapolated to global trade, especially, US relations with China, since the nature of the claims to the Celestial Empire as a competitor in the high-tech sphere are somewhat different. Broad state support for enterprises, both financial and implicit regulatory, export subsidies, the relative closure of the domestic trading market, manipulation of the yuan, undermine, in the opinion of the US administration, the principles of free competition and fairness in trade. China is trying to fight back with the increase in purchases of hydrocarbons and some sensitive items of US exports, but so far, unsuccessfully.

The recent low-level talks between the representatives of the two countries, reached a deadlock and in a few hours after the end, additional tariffs were introduced for 16 billion dollars from both sides. The aggregate amount of goods that fell under the tariffs amounted to 100 billion dollars.

Now the US administration is in the process of developing new tariffs and news has already appeared that the US is going to introduce wheel rim tariffs, which, according to the US, are heavily subsidized (from 50% to 175%). The duties will be introduced in proportion to these subsidies.

The dollar index fell to the level of 94.60, but the cautious nature of the dollar’s decline against other major currencies indicates a correctional nature of the movement, rather than full-scale sell-off. Support from the Fed, as I noted in my previous article, will allow Trump to fight more confidently against China, so the new tariffs and the potential for a jump in inflation as a consequence, so far remains relevant as an upside risk to the dollar. The economic picture so far also indicates the preponderance of the dollar, because other world Central banks remain unsure of the need to tighten the policy, just because of the lack of strong signals from inflation and rising wages.

Data on the US trade balance for July, which will come out later today, will help evaluate the effectiveness of the protection policy of Trump. The previous two months, the trade surplus shrank, indicating either a decrease in imports or an increase in exports, or their combined effect. On Wednesday we expect data on US GDP for the second quarter, which will also affect the dynamics of the dollar. Data on personal consumption allow us to assess consumer inflation and the effect of income on consumption patterns. Demand for tomorrow’s auction of treasury 2-year and 7-year securities will allow us to look at the market’s reaction to the massive increase in public debt due to the financing of the tax reform.

The Turkish lira continues to slowly bear losses against the dollar, after a brief relief against the publication of measures to reduce the pressure of speculators on the lira, US tension and Turkey’s debt problems again come to the fore as risks for the Turkish currency. USDTRY topped 6.20 on Tuesday.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.


Tickmill Representative
Dollar to come back?

Yesterday, the dollar index broke through support at 94.50 and touched the level of 94.30 before the recovery.

For several days I have been writing about the comeback of US, and today it finally seems as it might happen.

Yesterday, the dollar index broke through support at 94.50 and touched the level of 94.30 before the recovery, but what is interesting is that there is still no full-scale sell-off of the dollar. The joint move of the major currencies in the dollar index, ie. EUR, JPY, GBP, and CAD, shows that they exerted uneven pressure on the dollar in the last two weeks. In particular, the leaders of growth were CAD and EUR, while JPY and GBP grew weaker, i.е. incidentally reacting on domestic issues in Japan and UK:

Approximately for the same period there was an outflow from German Bunds, one of the main indicators of risk-taking. Their yield has grown with the hopes that the EM storm has passed. Euro could receive the boost particularly from the bond market outflow:

The Turkish lira remains a risk factor – today USDTRY is already 6.30, while the other EM currencies are also in negative territory, though in modest terms.

And the reason is one, every new portion of good economic data means tighter Fed policies, which means the contraction of dollar liquidity and as a consequence troubles for countries that borrowed heavily in dollars, for example Turkey.

What has happened to signify a likely positive change for the US economy? The index of consumer optimism jumped as much as 133.4 points in July. The market had not seen such significant rise in 18 years!

The US trade deficit widened to 72.2 billion dollars, slightly higher than expected, but now it is less important.

It was clear that the market overestimated Powell’s speech in Jackson Hole, there are already articles in the FT, what Powell is cunning and that he wants to please everyone. In my opinion, the Fed will raise the rates at planned, and as such, I could argue that we should not expect a deviation from the course when consumer optimism is breaking records.

We recall that consumption is the main component of growth in the US -72% of GDP. And if you take into account the leading nature of the indicator, then such a leap definitely lays the foundation for good wages and as a consequence leads solid figures in consumer inflation.

The dollar could receive a boost from the economy’s side from today.

Today, data on GDP, tomorrow on consumption, in general, there is something to focus on, while politics is on the sidelines. The data will probably become an additional trigger for strengthening the dollar.

The Chinese yuan is falling today, though cautiously, the news of the inclusion of a counter-cyclical factor in the calculation so far is weakly asserting itself. Gold is just above the opening, but is trying to go below 1200, hinting that the correction after the dive at 1160 may be over. The

National Development and Reform Commission published on their site a bitter note that some goals in the second half of the year may not be achieved. So it is not surprising, tariffs caught China at the time of barely noticeable signs of the economy’s weakness and a large-scale campaign to reduce financial leverage in the economy. Now, they can’t keep pursuing all goals at once – either go back to easing mode and keep accumulating debt, or sacrifice growth, but smooth out the negative effects of previous stimulus package.

The burden of this hard trade-off will now hang for a long time on the shoulders of the Chinese authorities.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.


Tickmill Representative
EM seems to be preparing a new surprise for investors

The dollar stages another growth attempt, after pulling back to local support at 94.40 on Wednesday. Yesterday’s attempt to hike failed as the upbeat data on GDP did not make any impression on the market. But the clouds gathering in the EM markets today, promise to unnerve traders once again.

Oil traders were highly upbeat on Wednesday after EIA data on reserves unexpectedly pleased for a second week in a row. The market continues to receive reports that Iran will find it increasingly difficult to find buyers for its oil under US sanctions and it is preparing for the most stringent response, for example, blocking the strait of Hormuz.

The decline in US reserves occurs for the second week in a row and both times it caught the market by surprise. Commercial inventories fell by 2.6 million barrels with a forecast of -1.5M. Demand for gasoline in the US probably increased, as firms reduced their reserves by 1.5M barrels, with expectations of 0 change.

“OPEC will consider the possibility of compensation for the fall in production in Iran due to sanctions that will enter into force in November,” the Iraqi oil official said on Wednesday. It turns out that the oil purchases of the allies will not save Iran’s oil sector despite their bold statements that it’s not the first time to sell oil under sanctions.

According to IEA calculations, exports from Iran in August could fall from 3.1M in April to 2M in August, mainly because of falling orders from South Korea and Japan. The interruptions in market supply due to dropping exports from Iran and Venezuela and the growing appetite in Asia may allow the rumors to circulate again about the tightening market by the end of the year. The head of IEA Fatih Birol expressed similar concerns on Wednesday.

Pound got its wings yesterday and flew above 1.30 following news related to Brexit. The chief negotiator on Brexit from the EU, Michael Barnier, said that London can get more favorable terms of cooperation with the EU after Brexit. This eased fear associated with the “hard Brexit”. The official noted that the proposal doesn’t include access to the single trade market.

Pound has retreated today back to 1.30, paring back the swift gains. Yesterday, the British currency rose by 1.2% against the dollar. Some “big bears” probably rushed to cover short positions, indicating that the Brexit factor may be the main component in the pressure on the pound, even after the Bank of England’s policies. Let me remind you that the EU summit will be held September 19-20 in Salzburg, where more details will be released on the “process of divorce” with Britain. Peaceful deal of EU with Britain is also important for the euro, as the two countries are important trade partners for one another, so we may see the European currency flying higher.

The pound rally pulled the dollar down, and more importantly, it was the only significant concession of the dollar against other major currencies yesterday. The dollar may lose against the Canadian dollar, if the negotiations on NAFTA end successfully (most likely). It is reasonable to assume that the main movement will begin in the first days of September, when the White House will jolt market sentiments with new tariffs, plus trading will switch from summer to normal autumn mode

EM markets are again depressed today, the main alarm signal comes from the lira, which again aimed at a level of 7 lira per dollar. The Yuan depreciates for the third consecutive day, pointing to the outflow of capital and growing problems in the Chinese economy. The Chinese currency is declining before the release of data on activity in the factories, as well as in the service sector. Domestic demand is expected to remain low, and a decrease in export orders due to uncertainty with tariffs is likely to be reflected in weaker indicators than expected.

Beijing will probably have to respond by easing measures, reducing the cost of credit, increasing government interventions and flooding banks with liquidity. However, such measures will only increase the pressure on the yuan, as the authorities by their actions will officially recognize the approach of the crisis and the need to fight it.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.


Tickmill Representative
Trump’s tariffs spark new wave of global uncertainty

Asian markets lost ground on Friday amid reports that Trump is ready to open a new chapter in the trade war with China. Chinese stocks were also in the red, eliminating any modest achievements made this week.

EM markets remain weak, the Argentine peso continued to fall despite the rate increase by the Argentine Central Bank. And although the world market managed to relatively isolate itself from the consequences of Argentina’s crisis and the depreciation of the Turkish lira, it seems that this chain of unpleasant events will cause suffering to the markets.

Data released on the Chinese economy on Friday exceeded expectations, albeit slightly. Production activity was 51.3 points in August, only 0.3 points higher than the forecast. Activity in the non-manufacturing sector grew slightly more rapidly, the key indicator was 54.2 points, with a forecast of 53.7. Despite the relief on the economic front of China, ShCOMP continues to target the support level of 2,700, the Chinese yuan has slightly strengthened on the news.

Despite the relative manageability of the yuan exchange rate, an unpleasant consequence of the trade wars was the growth of volatility in USDCNY, which even exceeds the volatility in EURUSD in the last 30 days.

PMI data barely improved the mood, because attention is now focused on the new Trump tariffs. Bloomberg said that the president is ready to push new tariffs at $200 billion Chinese goods, as soon as the public discussion period ends this week. At first, there were doubts that the administration would be able to prepare tariffs in such a short period, but doubts quickly dispelled with the president’s resolute messages.

In an interview with Bloomberg on Thursday, Trump also threatened that he was ready to withdraw the US from WTO if they don’t finally “shape up.” Such an isolationist step is likely to be opposed by the Congress, but there is definitely a benefit from such verbal interventions.

Trump also rejected the European Union’s proposal to take off tariffs on cars, calling the EU’s trade policy “as bad as China’s.”

Canadian and Mexican concessions to the US, which almost led to a new NAFTA agreement, unfortunately, do not yet give grounds to believe that trade disputes with other partners will soon be resolved. In particular, yesterday the Chinese minister said that until the US talks with China on an equal footing, progress in trade negotiations will not be achieved. It seems that Trump’s tariffs aimed at improving the trade balance and the settlement intellectual property issues, are just a cover, in fact, it’s about eliminating a potential competitor in the technological sphere.

EURUSD broke the lower border of the channel on Thursday, recovering from the level of 1.1650, so further growth is limited and news about new tariffs will likely provoke a similar effect to the previous one – a sharp strengthening of the dollar due to expectations of increased inflation and instability in the markets of the emerging countries. If EURUSD fails to consolidate today significantly above 1.1700 – 1.1720, the pair will likely drop next week since the markets will be convinced that the momentum gained since a pullback from 1.13 is lost. The statement of the head of the Central Bank of Austria Ewald Novotny failed to help the euro increase its advantage against the dollar, or had, what appears to be, a very limited effect.

Short positions on the lira appear to be taking profit today, this is evident from the rebound of USDTRY from the level of 6.80 to 6.51 on Friday. However, most likely this will not help the Turkish currency decline to a psychologically important mark of 7 lire per dollar, after which a new spiral of depreciation may begin.

Uncertainty about the future on the financial markets finally woke up sellers of volatility, which closed some of their positions. The VIX index jumped by 10.45% on Friday, primarily due to the fact that the markets are seriously aware of the threat of new US tariffs against China.

As expected, Trump’s new tariffs caused a wave of uncertainty and outflow from markets with high returns. However, the dollar can not boast of the status of a defensive asset this time, as the US and the first signal probably can enter a new round of conflict escalation from the stock market. The market of treasury bonds does not trust the euphoria in the economy and the relatively good mood in the stock market, the yield of 10-year Treasury bonds is declining over the past two days, indicating that demand for risk-free assets is growing.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.