Increased tension in Hong Kong and an upset in Argentine elections distress markets
August 12, 2019
Investors moved into risk-off mode after protestors shut Hong Kong’s airport and Argentina’s President, Mauricio Macri, unexpectedly lost a primary vote. Demand for safe haven assets rose, including the US dollar, US treasuries, the Japanese yen, Swiss franc and gold. Equity markets are lower, especially those in emerging markets. A full week of US economic data releases lies ahead.
Monday: Bloomberg August Germany, France, Italy and Spain Economic Surveys
Tuesday: NFIB Small Business Optimism, Consumer Price Index, Real Avg Earnings
Wednesday: Import / Export Prices
Thursday: Nonfarm Productivity, Retail Sales, Initial Jobless Claims
Friday: Housing Starts, University of Michigan Sentiment
August 12, 2019
EUR/USD 1.1220 GBP/USD 1.2094 USD/CAD 1.3218 AUD/USD 0.6753 USD/JPY 105.21 USD/CNH 7.0970 USD/ILS 3.4752 USD/MXN 19.6682 USD/CHF 0.9711 USD/INR 70.7900 USD/ARS 56.7250
Following a bearish close last Friday, the dollar showed a mixed performance overnight. Safe haven buying pulled the dollar higher against emerging market currencies, but it dropped against both the EUR and GBP. A week of key economic data lies ahead. Long-term investors remain bearish the dollar, fueled more recently on market chatter of overvalued status. On the other hand, short-term speculators remain bullish the dollar, fueled by the recent increase in geopolitical risks – Hong Kong tensions, a looming no-confidence vote in Italy, a primary election defeat of Argentina’s president, and increased odds of a no-deal Brexit.GBP
The UK pound bounced hard off 10-year lows near $1.20 reached earlier today, and currently trades near $1.21. Asian traders sold the pound initially following a UK-based report released on Sunday saying that parliament may not be able to avoid a no-deal Brexit outcome. Once the European trading session began, the pound rallied and short-covering drove it higher. The risks associated with a no-deal Brexit dominate trading concerns more so than any UK economic data.EUR
The euro traded over $1.12 in a short-covering rally. Italian parliament is meeting today to decide when PM Conte will have to face a no-confidence vote, which many investors welcome since it may end the awkward coalition in power for more than a year.CAD
The Canadian dollar weakened slightly overnight, the key themes being lower oil prices and safe-haven buying of the US dollar.ASIA/PACIFIC
Protestors closed Hong Kong’s airport, pushing HK equities lower and increasing pressure on EM assets worldwide. The Hong Kong dollar edged lower and the Chinese yuan actually edged higher, as the PBOC wants to show market stability in FX markets as domestic tensions grow.ARS
Argentina assets and the peso plummeted after President Mauricio Macri unexpectedly lost a primary vote by a landslide. The vote indicates a likely defeat in October’s presidential election and a possible return to the unpopular policies of his predecessor, Cristina Kirchner.