Daily Market Update

Stocks Sink on China Retaliation; Dollar Awaits Powell

August 23, 2019

The U.S. dollar strengthened to its strongest level since December but remains in fairly familiar ranges against most of its counterparts.

Overview

The risk mood soured overnight after China promised to levy retaliatory tariffs in response to President Trump’s tariffs announced earlier this month.  China is said to put a tariff on another 75 billion worth of U.S. good in two batches on September 1 and December 15th.  China will also add an extra 5.0% tariff on American soybeans and crude oil.  A 25% duty on U.S. cars will resume on December 15th.  Equity futures reversed earlier gains and are now set to open sharply lower.

The greenback has mostly shrugged off the change in the risk mood.  Attention seems to be solely on Fed Chairman Powell’s speech this morning in Jackson Hole.  Traders have been eager to hear from Powell.  Much has happened since the last Fed meeting, including the introduction of new tariffs and China’s retaliation, so we will be looking for guidance from the Fed chief for clues on future policy.  Fed fund futures show that market participants are pricing in a full percentage point cut over the next twelve months.  Expect heightened volatility once Powell begins to speak at 10 a.m. est.

 

What to Watch Today…

  • Fed Chairman Powell Speaks at 10 a.m.

Complete Economic Calendar can be found here.

 

NZD

The New Zealand dollar bucked the trend of a strong greenback overnight and gained slightly.  The Kiwi found some strength after Reserve Bank of New Zealand Adrian Orr held a more hawkish stance in comments overnight.  Orr held that the central bank could afford to wait and see before taking additional steps to prop up the economy.

Both the Aussie and Kiwi reversed some of their gains following the Chinese retaliatory tariffs.

GBP

The British pound exploded higher yesterday morning and has its best day in four months against the U.S. dollar after comments from the German Chancellor and French president offered a glimmer of hope that a deal can be found on Brexit.  The sterling has since given back a touch of those gains.  U.K. Prime Minister Boris Johnson will meet with President Trump at the G-7 meeting on Sunday.

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