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Collinson FX: August 20, 2020 - US ramps up Trade War with China

by Collinson FX 19 Aug 2020 21:46 PDT 20 August 2020
Rawhiti - Mahurangi Regatta - Mahurangi Harbour - January 2020 © Richard Gladwell / Sail-World.com

Collinson FX: August 20, 2020 - China relationship becomes election issue for US

Aug 20: The Fed minutes were released overnight, dampening enthusiasm in equity markets, after the S&P and Nasdaq hit all-time record highs. The Fed warned that the pandemic would 'weigh heavily' on the recovery in the US economy. President Trump refused further trade talks with the Chinese, as their relationship rapidly deteriorates, becoming a key election issue in the USA. This will have serious impact on global trade. The gloomy predictions from the Fed, dragged equities from their record highs and boosted the safe haven US Dollar. The EUR sharply reversed recent gains, plunging to 1.1850, while the GBP traded around 1.3100. This reversal in the GBP was after strong recent gains, highlighted by a spike in inflation, which smashed expectations.

The pandemic remains a major macro influence on global markets, while the deteriorating US/China relations is also slamming global confidence. The impact on the supply chain will be negative and this will disproportionately hurt the trade exposed, commodity currencies. The AUD fell back below 0.7200, while the NZD traded 0.6570, both being impacted by pandemic related lock downs and a rising reserve. Maersk, the largest shipping company in the world, reported much better than expected earnings. Lower shipping volumes were overcome by rising rates, lower fuel costs and rising profitability in their Freight and Logistics. This is a great sign for global trade, as the economic recovery progresses forward.

Collinson FX: August 20, 2020 - No US chips for Huawei

Aug 19: US/China tensions continue to escalate, as the US announces that no foreign made 'chips' (using US technology), will be supplied to Huawei. This follows the sanctions imposed on the Chinese Social media giants WeChat and TikTok. This failed to disrupt US equity markets, as the S&P rallied to all time record highs (following the Nasdaq), supported by the strong performance of the Tech companies. US Housing Starts and Building Permits both surged, lending to the 'V-shaped' recovery theory, by a leading sector.

The Safe Haven US Dollar continued to beat a retreat, with the EUR jumping to 1.1930, while the GBP spiked to 1.3235. The rising confidence has allowed the reserve currency to drift and troubled currencies to regain some mojo. The woes of the 'second wave' of the virus have impacted the trade exposed currencies, but the softer Dollar pushed the AUD back to 0.7230, while the NZD looks to regain 0.6600.

Trade tensions and the virus continue to operate as 'interrupters' to the economic recovery, although economic data is improving, from record pandemic lows.

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