Flip-flop US-China turns optimistic

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Flip-flop US-China turns optimistic

Against the dollar, Thai baht on the previous trading day closed slightly stronger around 30.63.

Flip-flop US-China turned optimistic again. Chinese Commerce Ministry said that, although having various ways to strike back against the US, China preferred to resume trade talks with the US, aiming at eliminating the new tariffs imposed between the two powers in order to de-escalate tensions. President Trump also said that the two countries would be restarting trade negotiations. The next meeting is anticipated to be held in September. As a result, such trade optimism boosted risky assets and stocks.

US Q2 GDP’s second estimate, revealed to be 2%, was slightly downgraded from its first estimate of 2.1%. US GDP growth deteriorated from 3.1% in Q1, under threats from trade policy uncertainty and US-China retaliatory tariffs.

Christine Lagarde, who will succeed Mario Draghi in November as the next ECB president, believed that the ECB has a wide-ranging tools and is ready to act if necessary. However, financial stability risks also need to be considered.

The sterling on the dollar could be growingly volatile at least until the Brexit deadline, 31 October. After Boris Johnson took office as the new UK PM in July and since a no-deal scenario has been more probable over time, GBPUSD volatility implied from currency options has been persistently soaring, from 6.5-7% in July to around 13.5 recently (3-month implied volatility). This is owing to an increasingly chaotic Brexit as certain MPs, including Labour Party, other opposition parties, and even some of Conservative MPs would like to avoid a hard or no-deal Brexit, whereas PM Johnson processed to block his opposition, announcing Brexit was to happen on 31 October, either with or without an agreement with the EU.

Despite Germany’s economic sluggishness with decreasing and below-expectation inflation of 1.4% yoy in August, the euro area’s economic and business sentiments slightly picked up in August, however still staying at a relatively low level.

Japan’s unemployment rate improved to 2.2%, 14-month low, while its industrial production also recovered, up to +0.7% yoy, after growing negatively for five month consecutively. However, retail sales and consumer confidence kept on worsening, down to -2% yoy and 37.1, respectively.

After cutting rates by 25 bps last month, to 1.5% from 1.75%, Bank of Korea (BoK) today held rates steady at 1.5%. The monetary authority possibly desired to avoid back-to-back rate cuts and to preserve its policy space. Nonetheless, as its exports remained contracting along with weakening demands, economists projected another 25-bps cut at the next BoK’s meeting in October.

Moving around 30.64-30.67 this morning, USDTHB could be between 30.61-30.71 today.


US treasury yields climb on trade optimism

Thai benchmark government bond yield (LB28DA, 9.3 years) on the previous trading day was 1.43, -0.8 bps. Meantime, the latest closed Thai and US 10-year bond yields were 1.43%, -0.9 bps, and 1.50%, +3 bps, respectively.

On US-China trade optimism, US treasury yields climbed higher.

Apart from plummeting to finish at its historic low, 1.94%, on Wednesday, US 30-treasury yield is likely having a largest monthly drop, about 60 bps, since 2011.

Spread between long- and short-dated yields: negativity implies a possible upcoming recession. US 10y3m: -49 bps, US 10y2y: -3 bps, Japan 10y2y: +2.8 bps, German 10y2y: +19.9. bps, UK 10y2y: +8.1, Thai 10y2y: +7.5 bps.

Thai benchmark government bond yield (LB28DA, 9.3 years) could be between 1.42-1.44%, while Thai 10-year yield possibly 1.42-1.44 today.


Sources: Bangkokbiznews, BBC, Bloomberg, CNBC, CNN, Financial Times, ING, Investing.com, Reuters, South China Morning Post