Trump Tariffs Put Market on the Defensive
August 5th, 2019
The escalation of the trade war by President Trump has the markets on the defensive here to start the new week. The yuan has fallen substantially overnight to its weakest level in more than a decade and crossed over the 7 yuan per dollar mark, which has been a line in the sand for Beijing policy makers. China’s central bank has let it be known that they have the confidence and the capability to keep the yuan exchange rate stable. China has also halted purchases of US agricultural products.
The overnight trading has the outlook for a lower opening of the markets here in the US to start the week. Energy price are also lower in overnight trading. As a result of the falling yuan and the overall escalation in trade tensions the US Treasury Yield Curve has inverted sharply and the implied risk that the US economy could enter a recession in the next 12 months is at its highest level since April 2007.
Iran Revolutionary Guards announced that they had seized another foreign vessel over the weekend. They captured an Iraqi oil tanker which they said was smuggling fuel for some Arab countries. “The Persian Gulf is like a tinderbox and explosion of a firecracker can lead to a huge disaster,” the semi-official Mehr news agency quoted Guards commander Brigadier General Ahmadreza Pourdastan saying. It is a bit interesting that this news is taking a backseat to China and US trade tensions and that energy prices are trading lower on trade war news and not higher on tanker capture.
The Baker Hughes rig count fell by 6 to a total of 770, the lowest level since February 2018. The number of oil rigs drilling for oil is now down 118 or 13% since November 2018.
The Mainichi newspaper reported that Japan will not send warships to join a US-led maritime force to guard oil tankers in the Strait of Hormuz fearing a military respond from Iran, but it may send patrol aircraft.
Russia’s Energy Ministry said Russia’s Energy Minister, Alexander Novak, met Saudi Arabia’s Energy Minister, Khalid al-Falih, on Friday and said Russia deemed it important to bolster its cooperation with Saudi Arabia.
The Bureau of Labor Statistics reported Friday morning that 164,000 new jobs were created in July, which was 13,000 better than the 151,000 new jobs expected by economist.