US-China Tensions Resurface Putting A Wrench To Recent Risk-On Sentiment

Fundamental analysis of Forex market


  • Geopolitical Tensions simmer after China stated the US ordered it to close its consulate in Houston citing issues over intellectual property


  • Japan July Preliminary PMI Manufacturing 42.6 v 40.1 prior (15th straight contraction)
  • Australia Jun Preliminary Retail Sales M/M: 2.4% v 16.3% prior; Y/Y 8.2% v 5.3%


– advertisement –
  • Total global cases 14,906,602 (+1.7% d/d); total deaths: 615.8K (+1.0% d/d)
  • Tokyo Ccoronavirus monitoring panel showed that outbreak was continuing to spread. Infections rising faster among middle aged and older people (Note: Tokyo reports 238 additional coronavirus cases v 237 prior)


  • UK govt said to be close to abandoning a post-Brexit trade deal with EU; govt assumption was UK will trade with EU on WTO terms after transition period ended on Dec 31st, though a ‘basic’ deal still remained possible if the EU gave ground – UK press
  • UK said to also abandon hope of US trade deal by end of year – FT


  • President Trump stated that coronavirus outbreak would probably get worse before it got better; outbreak seemed to be largely in the Sun Belt, but it could spread (Note: US daily death toll rose above 1,000)
  • President Trump signed executive order limiting the redistricting of voter districts. Redistricting restrictions might limit the voting power of certain states which had a larger population of immigrants who are unlawfully residing in the US
  • While House economic adviser Kudlow: thinks stimulus bill can be done by end-July
  • Sen McConnell did not expect that stimulus bill to be completed by end of July
  • Tsy Sec Mnuchin: Lots of progress being made want to finish the stimulus bill by end of this month
  • US Republicans consider offering 70% wage replacement for unemployment insurance in stimulus talks – Press
  • House Speaker Pelosi: Democrats want to see a Republican bill and then they’ll negotiate; $1T price tag on GOP aid bill won’t be sufficient to do what’s needed for economy and America’s health


  • Weekly API Crude Oil Inventories: +7.5M v -8.3M prior



  • Indices [Stoxx600 -1.01% at 372.90, FTSE -0.90% at 6,213.35, DAX -0.53% at 13,101.90, CAC-40 -1.18% at 5,044.19, IBEX-35 -1.29% at 7,398.00, FTSE MIB -0.69% at 20,580.50, SMI -0.49% at 10,393.09, S&P 500 Futures -0.53%]
  • Market Focal Points/Key Themes: European indices open modestly lower and descended further in the red as the session wore on; reports of UK close to abandoning Brexit deal blamed for drop in risk appetite; sectors leading gains include materials and technology; underperforming sectors lead by consumer discretionary and energy; ABB initiates previously announced share buyback program; earnings expected in the upcoming US session include Microsoft and Tesla


  • Energy: Norsk Hydro [NHY.NO] -2% (earnings)
  • Healthcare: Bavarian Nordic [BAVA.DK] +8% (agreement on vaccine)
  • Industrials: ABB [ABBN.CH] +3% (earnings; commences share buyback), Kingfisher [KGF.UK] +10% (trading update), Valeo [FR.FR] -3% (earnings), Antofagasta [ANTO.UK] -1% (production report)
  • Utilities: Iberdrola [IBE.ES] -1.5% (earnings)


  • Japan Cabinet Office (Govt) Monthly Economic Report for July raised its Overall economic assessment and now saw the domestic economy as showing signs of picking up but it remained in in severe situation (2nd straight upgrade) (Note: The prior Jun assessment was domestic economy had almost stopped deteriorating’ but remained in an extremely severe situation)
  • Australia govt saw Victoria State coronavirus lockdown possibly subtracting 0.75% off of Q3 GDP
  • China Global Times Editor in Chief Hu Xijin: ‘The US asked China to close Consulate General in Houston in 72 hours. China labeled such actions as provocation. Urged US to correct wrong decisions or there will be retaliations
  • China PBoC said to pause further monetary policy easing
  • US State Dept confirmed that China to close its Houston consulate citing the move over intellectual property issues
  • A 7.8 earthquake reported 84Km SSE of Perryville, off the southern coast of Alaska Peninsula; tsunami warnings initially issued then cancelled

Currencies/Fixed Income

  • The session saw a turn in sentiment from risk-on to risk-off as geopolitical tensions between US-China perculated.
  • EUR/USD holding above the 1.15 level and seemed poised to enter a new trading range but some safe-haven flows was trying to derail such momentum.
  • GBP/USD lower in the session on concerns over the Brexit negotiations. Reports circulated overnight that UK govt was close to abandoning a post-Brexit trade deal with EU and then trade under WTO terms after transition period ended. Pair lower by 0.6% at 1.2645 area by mid-session. Economic Data
  • (NL) Netherlands May Consumer Spending Y/Y: -12.8% v -17.3% prior
  • (NL) Netherlands July Consumer Confidence Index: -26 v -27 prior
  • (MY) Malaysia mid-July Foreign Reserves: $104.0B v $103.4B prior
  • (TW) Taiwan Jun Unemployment Rate: 4.0% v 4.2%e
  • (PL) Poland July Consumer Confidence: -13.4 v -19.4 prior
  • (IS) Iceland Jun Wage Index M/M: 0.2% v 0.3% prior; Y/Y: 6.7% v 6.4% prior

Fixed Income Issuance

  • (IN) India sold total INR350B vs. INR350B indicated in 3-month, 6-month and 12-month bills
  • (UK) DMO sold £3.0B in 0.125% Jan 2028 Gilts; ; Avg Yield: 0.045% v 0.104% prior; bid-to-cover: 2.15x v 1.84x prior; Tail: 0.3bps v 0.6bps prior

Looking Ahead

  • 05:30 (DE) Germany to sell €1.5B in 1.25% Aug 2048 Bunds
  • 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0-1.25B in 2026 and 2030 OT bonds
  • 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills
  • 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays)
  • 06:00 (IE) Ireland Jun PPI M/M: no est v -1.0% prior; Y/Y: No est v -7.4% prior
  • 06:00 (RU) Russia to sell OFZ bonds
  • 06:00 (CZ) Czech Republic to sell 2030 and 2040 bonds
  • 06:30 (UK) DMO to sell £500M in 1.25% Nov 2032 Inflation-linked Gilt (UKTi)
  • 07:00 (US) MBA Mortgage Applications w/e July 15th: No est v 5.1% prior
  • 07:00 (MX) Mexico May Retail Sales M/M: +3.4%e v -22.4% prior; Y/Y: -20.0%e v -23.8% prior
  • 07:00 (ZA) South Africa May Retail Sales M/M: +27.6%e v 2.3% prior; Y/Y: -25.5%e v +2.7% prior
  • 07:00 (UK) Weekly PM Question time in House
  • 08:00 (PL) Poland Jun M3 Money Supply M/M: 2.4%e v 2.7% prior; Y/Y: 17.3%e v 16.0% prior
  • 08:00 (UK) Daily Baltic Dry Bulk Index
  • 08:30 (CA) Canada Jun CPI M/M: 0.4%e v 0.3% prior; Y/Y: +0.2%e v -0.4% prior; Consumer Price Index: 136.6e v 136.1 prior; CPI Core- Median Y/Y: 1.8%e v 1.9% prior; CPI Core- Common Y/Y: 1.3%e v 1.4% prior; CPI Core- Trim Y/Y: 1.6%e v 1.7% prior
  • 09:00 (US) May FHFA House Price Index M/M: 0.3%e v 0.2% prior
  • 10:00 (US) Jun Existing Home Sales: 4.75Me v 3.91M prior
  • 10:30 (US) Weekly DOE Oil Inventories
  • 11:00 (ES) ECB’s De Guindos (Spain) on panel at annual US-EU symposium in NY
  • 12:00 (CA) Canada to sell 2 Year Bonds
  • 13:00 (US) Treasury to sell 20-Year Bonds Reopening
  • 15:00 (AR) Argentina Economic Activity Index (Monthly GDP) M/M: No est v -17.5% prior; Y/Y: No est v -26.45 prior
  • (CO) Colombia Jun Retail Confidence: No est v -9.2 prior, Industrial Confidence: No est v -21.3 prior (no set time)
  • 19:00 (KR) South Korea Q2 Preliminary GDP Q/Q: -2.4%e v -1.3% prior; Y/Y: -2.0%e v 1.4% prior
  • 21:00 (CN) China Jun Swift Global Payments (CNY): No est v 1.8% prior
  • 21:30 (AU) Australia Q2 NAB Business Confidence: No est v -11 prior
  • 22:05 (NZ) New Zealand to sell 2023, 2029 and 2033 bonds
  • 23:00 (CN) China to sell 10-Yr Upsized Special Government Bond
  • 23:30 (TH) Thailand Jun Customs Trade Balance: $2.9Be v $2.7B prior; Customs Exports Y/Y: -15.0%e v -22.5% prior; Customs Imports Y/Y: -17.0%e v -34.4% prior
  • 23:30 (JP) Japan to sell 12-Month Bills