Capital Markets: "US Dollar Finishing August on Firm Note as Euro nears Two-Year Lows"

From Marc to Market:

Overview: Global equities are advancing at least in part on ideas that trade tensions are easing. China announced it would not take immediate action on the five percentage point increase in levies that the US announced strictly in response to China's retaliatory tariffs. A lull between blows is not the same thing as de-escalation or truce. The next round of tariff increases is set for September 1. Nevertheless, equities are higher following the 1.25% rise in the S&P 500 yesterday. China and Indian markets were the notable laggards in the Asia Pacific. The Dow Jones Stoxx 600 is up about 0.7% and near its best levels since August 2. US shares are trading firmer and the S&P 500, which gapped higher yesterday is approaching the upper end of the month's range near 2950. Rising equities has removed a bid from bonds, and most yields are edging higher today. Italian bonds are a notable exception with new record lows as a crisis appears to have been avoided. The dollar is firm against the major currencies. Central and Eastern European currencies remain under pressures, but emerging currencies in Asia, led by the Korean won are firmer. South Korea reported a 2.6% jump in July (month-over-month) industrial output compared with expectations for a 0.5% increase. Oil is snapping a three-day advance and gold is soft for a third day. End of month activity ahead of a three-day weekend for the US and Canada is also a consideration today.

Asia Pacific
The yuan was stronger in the Asian session but has given back those gains in Europe. The PBOC again (eighth session) set the dollar's reference rate lower than the models the banks use suggested. We do not read much into China's restraint in not retaliating against the hike in previously announced tariffs. The US has now admitted that Chinese officials did not call Trump to restart talks that were already underway. That was simply used to support the markets comes as no surprise to many. New tariffs will go into effect on September 1. The real signal seems to be not a de-escalation in the tensions but that a trade agreement between the two is unlikely any time soon....MUCH MORE