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ICBC Financial Market Daily Review - September 26, 2018
 

I. Yesterday’s News
International News

1. U.S. President Donald Trump's top trade official said on Tuesday that changing China's economic policies to become more market-oriented "is not going to be easy" even with tariffs now in place on $250 billion worth of Chinese goods. U.S. Trade Representative Robert Lighthizer, in rare public remarks at the Concordia Summit, said "endless dialogues" with the Chinese government over decades had "failed miserably" in changing Beijing's policies, so the Trump administration decided to try direct pressure with tariffs based on its study of China's intellectual property and technology transfer policies.

2. EU negotiators are ready to offer Theresa May a free-trade area after Brexit but say that, contrary to her "Chequers" plan, there must be a customs border that will make trade less than "frictionless", according to an internal EU document seen by Reuters on Tuesday. The document -- three pages of "defensive points" for EU officials to make against the UK prime minister's July proposal on future ties with the bloc -- may offer May some comfort in showing a readiness to seal a free trade agreement (FTA) like those giving access to Japan or Canada's goods and services.

3. U.S. consumer confidence surged to an 18-year high in September as households grew more upbeat about the labor market, pointing to sustained strength in the economy despite an increasingly bitter trade dispute between the United States and China. The Conference Board said its consumer confidence index increased to a reading of 138.4 this month. That was the best reading since September 2000 and the index is not too far from an all-time high of 144.7 reached that year. While other data on Tuesday showed a moderation in house price increases in July, the gains probably remain sufficient to boost household wealth and continue to support consumer spending, as well as making home purchasing a bit more affordable for first-time buyers.

4. Argentina's central bank governor unexpectedly resignedon Tuesday in the midst of negotiations with the International Monetary Fund, upsetting President Mauricio Macri's efforts to restore investor confidence and sending the peso sliding. Luis Caputo's resignation came due to personal reasons after just three months in the role.

5. Morale in the French industrial sector fell in September to its lowest level since March 2017, according to data from the INSEE state statistics agency, in a further sign that the euro zone's second-biggest economy is going through a sluggish period. The reading for industrial confidence in September fell to 107 points from 110 points in August - worse than a Reuters forecast which predicted a September reading of 109.40 points.

Domestic News

6. China is willing to work hard to promote bilateral trade in a more balanced direction and hopes that the US can also show a positive attitude, said Fu Ziying, the Ministry of Commerce’s international trade negotiator. China has kept the door to negotiations open, but negotiations can only happen when there is mutual respect, equality, good faith and deeds matching words. Negotiations cannot be conducted at the cost of China’s right to development.

7. The Information Office of the State Council released a white paper titled “The Facts and China’s Position on China-US Trade Friction” on Monday that elaborated on China’s position on the trade friction with the United States, saying China’s position is clear, consistent and firm. “China does not want a trade war, but it is not afraid of one and will fight one if necessary,” the white paper said. It also stresses that the door for negotiations with the US is always open, but that negotiations must be based on mutual respect and equality.

8. China’s President Xi Jinping said China’s rural vitalization strategy shall take care of the relationship between long-term and short-term goals, shunning of pursuing instant success and quick profits. He stressed to build a sustainable long-lasting development mechanism based on realistic and practical objectives.

9. China is willing to resolve trade imbalance with the US via dialogue, although talks should be based on equality and sincerity, and cannot take place under threats and pressure, senior Chinese diplomat Wang Yi said on Tuesday.

II. Market Overview
FX
1. Global Market

The dollar was slightly weaker on Tuesday ahead of a Federal Reserve meeting that is widely expected to end with an interest rate hike, as investors already have priced in two more rate increases this year and some in 2019, leaving little room for further currency gains. In afternoon trading, the dollar index was down 0.1 percent at 94.120. The euro was last up 0.2 percent at $1.1771. Against the yen, the dollar was up 0.1 percent at 112.92 yen.

2. Home Market

China’s yuan slumped 266 bps in the morning, whole the midpoint rates also fell slightly. The dollar index steadied at 94 after a downtrend in the past weeks, but rising U.S.-China trade friction added to ample FX demand in weighing on yuan, traders said. Investors shall be cautious ahead of the National Day holiday.

Precious Metals

Gold edged higher on Tuesday as the dollar drifted ahead of a U.S. Federal Reserve monetary policy meeting, but bullion's upside remained capped by strong U.S. economic data that continues to underpin the greenback. Spot gold closed at $1,200.91 per ounce. U.S. gold futures for December delivery settled up 70 cents, or 0.1 percent, at $1,205.10 per ounce.

Commodities
1.Crude Oil

Oil prices rose Tuesday on global supply concerns following U.S. sanctions on Iran's oil exports, with benchmark Brent surging to a four-year high, then retraced gains to settle just slightly higher after U.S. President Donald Trump called again on OPEC to boost crude output. Brent crude futures settled up 67 cents at $81.87 a barrel. U.S. crude futures rose 20 cents to $72.28 a barrel, close to the highest since mid-July.

2.Base Metals

Copper, zinc and other base metals slid on Tuesday, rattled by more concerns about the economy of top metals consumer China and adjusting after a one-day closure of Chinese markets. Three-month LME copper closed 0.6 percent down at $6,318 a tonne. LME zinc shed 2.2 percent to finish at $2,507 a tonne.

U.S. Treasuries
1. U.S. Bonds

U.S. Treasury yields climbed on Tuesday, with the 10-year yield scaling to a four-month peak, on bets about Federal Reserve interest rate increases in the coming months and poor demand so far for this week's supply of government debt. The U.S. Treasury Department sold $38 billion in five-year notes to soft bidding. The benchmark 10-year Treasury yield was 3.102 percent. Its session high of 3.113 percent was its highest since May, Reuters data showed. The 30-year yield reached 3.249 percent, its highest in four months. Five-year yields touched 2.990 percent, which was last seen in June 2009.

2. Chinese bonds

China’s interbank debt market steadied in the morning, with cash bonds in tight range and Treasury bonds inching higher. Trading was thin ahead of the seven-day National Day Holiday, with bond futures seeing technical rebound and cash bond yields little changed. On fundamentals, a new round of reciprocal trade tariffs between China and U.S. was muted by the market.

Stock Market
1. U.S. Equities

The S&P 500 fell on Tuesday as chipmakers were dented by ratings downgrades and utilities declined ahead of an expected Federal Reserve interest rate hike, offsetting a boost from the energy sector. The Dow Jones Industrial Average fell 0.26 percent to end at 26,492.21 points, and the S&P 500 lost 0.13 percent to 2,915.56. The Nasdaq Composite rose 0.18 percent to 8,007.47. Amazon.com Inc provided the greatest lift to the technology-heavy index, jumping 2.08 percent.

2. Hong Kong Equities

Hong Kong's financial markets was closed for the Mid-Autumn Festival. 

3. China Equities

China's stock markets fell on Tuesday, dented by heavyweights, financials and property sector in particular, after yesterday’s slump in Hong Kong. But this round of rally is expected to sustain in thinned trading well after the National Day holiday. At the close, the Shanghai Composite index was down 16.35 points or 0.58 percent at 2,781.14. The turnover of Shanghai A shares tumbled almost 30 percent to 108.4 billion yuan from yesterday’s 148.8 billion yuan.


(2018-09-26)
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