The US is closed today for Labor Day, following last Friday's cautious finish. The key headlines driving markets are that the US imposed a
15% tariff on $110bn of China imports on Sunday with another bunch of $160bn to be unleashed 15th December. China is expected to retaliate
with $75bn on US imports. In general, markets are in a holding pattern as headlines slow. Oil prices lost most of the gains as hurricanes
Dorian changed path. The exodus from EUR into USD continued last week with the pair falling 1.5% and 0.8% to 1.0980 on Friday alone. US 10-yr
TIPS yield fell to lowest level & negative territory in 6-years.
Last weeks second revision of 2Q GDP growth had some bright spots. 2Q reading was revised lower to 2.0% from 2.1% qoq, yet personal
consumption was upgraded to 4.7% from 4.3%. This is the fastest pace of consumer spending in over four years. Also, core PCE came in at 1.7% yoy
vs. 1.8% indicating that slowing inflation pressure provides the Fed with more maneuverability. As expected trade balance was weak
widening to $982.5bn vs. 978.7bn prior month. Trade tensions are seemly deescalating, as Trump indicated that talks over trade were
scheduled for “today”. “China has ample means for retaliation but thinks the question that should be discussed now is about removing the new
tariffs to prevent escalation,” Ministry of Commerce spokesperson Gao Feng stated to news agencies. US-China trade tensions will
continue to drive FX markets next week. Yet, chasing the random volatility caused by flash news headlines and Trump tweets are likely to give
traders whiplash.
In Thailand, July exports increased 3.8% yoy after contracting 2.1% in June, while imports expanded marginally by 0.9% yoy after
dropping by 9.6% previously. This was an encouraging sign considering the external sectors has been weighing on the economy. The current
account surplus remained solid at $1.8bn from $3.9bn prior. However, falling exports could drag private consumption in the 2H. Further,
imprinting the feeling of returning health foreign reserves held at near-record levels at $220bn. Despite macro headwinds, the Southeast
Asian economy looks to have already bottomed. Thailand is currently tracking a respectable 2.4% GDP growth this year. Unlikely other Asian
currencies, which have followed USDCNY higher, THB has bucked the trend. USDTHB has depreciated 6.5% YTD increase the likelihood of the BoT
steps in to reduce the baht’s strength. BoT motivation for cutting interest rates last month was to reduce the baht’s strength. Recent BoT
minutes indicate a hesitation to cut-rate purely for slowing TBH appreciations however should the currency further lose regional
competitive more forceful measures.
By Peter Rosenstreich
