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China Backs U.S. Farm Purchases as Trade Talks Atmosphere Warms

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China said it is encouraging companies to buy U.S. farm products including soybeans and pork, and will exclude those commodities from additional tariffs, in the latest move to ease tensions before the two sides resume trade talks.

The Commerce Ministry’s announcement on Friday follows a move earlier this week to exempt a range of American goods from 25% extra tariffs put in place last year, as the government seeks to lessen the impact from the trade war. China didn’t specify the amount of purchases of pork and soybeans, which are key exports from agricultural states important for President Donald Trump’s 2020 reelection bid.

Equity markets have rebounded in recent days as both Trump and Chinese leader Xi Jinping sought to lower tensions that are clouding the outlook for the world’s biggest economies. Adding to the pressure on Beijing, China is facing pork shortages that are pushing up prices during a holiday period, prompting officials to ration sales in some areas. Still, major differences on the substantive issues that sparked the trade war remain.

“It is hoped the U.S. side can keep goodwill reciprocity with China through practical actions,” Global Times editor-in-chief Hu Xijin said in a tweet shortly before the move was announced.

Trump administration officials have discussed offering a limited trade agreement to China that would delay and even roll back some U.S. tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases. Working-level teams from both countries are set to meet next week.

“The ice is thawing,” said Chua Hak Bin, an economist at Maybank Kim Eng Research Pte. in Singapore. “China’s reciprocity to Trump’s goodwill gesture will set the stage for more cooperative trade talks.”

Soybean futures were little changed in Chicago after the Xinhua announcement. Prices had jumped 3.3% on Thursday and hog futures rose the most allowed by the exchange amid optimism that China will boost imports of American farm products. The U.S. government also cut its outlook for soybean stockpiles more than expected in a monthly crop report.

The Shanghai Composite Index increased for a second consecutive week, and the S&P 500 Index was on course for its third straight week of advances.

The Chinese government is growing increasingly concerned about soaring prices and its potentially to mar celebrations for the 70th anniversary of the People’s Republic of China’s founding on Oct. 1. China is hoping to import 2 million tons for the year, some of which would be added to state reserves, according to people with knowledge of the plans.

China bought about a million tons of pork so far this year, of which about 87,771 tons were from the U.S., according to Chinese customs data. Even if purchases tripled, imports would only make up about 6.6% of domestic supply, Citigroup Inc (NYSE:C). said in a report on Sept. 12. The world’s biggest consumer of pork accounted for about half of global demand last year, while it produced about 54 million tons, Citigroup said.

More imports are only going to go part of the way to addressing shortages. The country is likely to see a 10 million ton pork deficit this year, more than the roughly 8 million tons in annual global trade, according to Vice Premier Hu Chunhua. That means the country will need to fill the gap by itself, he said.

China’s Fight Against Pork Prices Could Include U.S. Imports

China had halted U.S. farm-product imports in August after trade-deal negotiations deteriorated. Before that, Beijing had given the go-ahead for five companies to buy up to 3 million tons of U.S. soybeans free of retaliatory import tariffs, people familiar with the situation had said.

The goods exempted from additional tariffs this week by China included pharmaceuticals, lubricant oil, alfalfa, fish meal and pesticides. The exemptions are effective from Sept. 17 to Sept. 16, 2020, and will cover 16 categories of products worth about $1.65 billion, according to Bloomberg calculations based on China’s 2018 trade data. Further rounds of Chinese exemptions will be announced in due course, the ministry said.

Wednesday’s exemptions apply to the round of tariffs Beijing imposed on U.S. goods starting last July in retaliation for higher U.S. levies. China began accepting applications for tariff exemptions in May, but it is the first time they have stated which products will be excluded. The U.S. Trade Representative’s Office has announced six rounds of exclusions for the punitive tariffs on $34 billion in Chinese goods since December.

“We can all see there is a likelihood of a mini-deal given China’s pork problems and to a lesser degree the 2020 election issue,” said Michael Every, head of Asia financial markets research at Rabobank in Hong Kong. “Does this mean we get a ‘real deal’? Let’s just say that this is still highly unlikely.”

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Forex - Dollar Extends Losses on Lingering Trade Hopes

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The dollar extended losses in early trading in Europe Friday, as higher-yielding currencies advanced on hopes of at least a temporary truce to the U.S.-China trade war.

President Donald Trump downplayed a Bloomberg report that his administration was preparing to do a temporary deal with China, potentially rolling back some of the import tariffs recently imposed on Chinese goods.

“Well, it’s something that people talk about,” Trump told reporters en route to an event late Thursday. “I’d rather get the whole deal done,”

The dollar index, which tracks the greenback against a basket of currencies, fell to its lowest in over a week in early trading and by 3:30 AM ET (0730 GMT) was at 98.07, down 0.2% from late Thursday.

Both the euro and the British pound made solid gains, sterling rising above $1.2400 for the first time in seven weeks as the political and judicial problems of Prime Minister Boris Johnson embolden hopes that the country will avoid a disorderly exit from the European Union at the end of next year.

The euro, meanwhile, is rising despite the European Central Bank’s best efforts to keep it weak with a package of monetary easing measures. By 3:30 AM, it was at $1.1104, up by three-quarters of a cent from immediately before the ECB’s policy decisions.

“We expect the euro to suffer more in the coming months and believe that it is still too early to bet on a stronger euro,” said Nordea Markets analyst Jan von Gerich, who has a target of between $1.07-$1.08 for EUR/USD.

Von Gerich argued that the modest size of the ECB’s new quantitative easing program was a slight disappointment, despite the dovish signal effect of it being left open-ended. He said it was likely that incoming President Christine Lagarde would want to ease policy further in December, not least by raising the ECB’s current limits on how much it can buy of each government’s individual bonds. That would allow the bank to beef up the program if needed.

Emerging currencies continued to rally against a backdrop of easier monetary policy in developed markets. The Russian ruble hit a seven-week high against the dollar, while the offshore Chinese yuan rose to its highest in a month.

The Turkish lira was consolidating just below the three-week highs it hit on Thursday in the wake of the Turkish central bank's 325 basis-point interest rate cut.

The mainland Chinese and Korean markets were closed Friday for holidays, while Japan’s is closed on Monday.

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Swiss Bank Group Lambasts Negative Rates for Damaging the Economy

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 The Swiss Bankers Association criticized the central bank’s policy of negative rates, saying it was causing “massive structural damage” to the economy.

At -0.75%, the Swiss National Bank’s policy rate is the lowest in the G-10 as the central bank tries to stem appreciation pressure on the haven franc. With momentum flagging, euro-area officials are likely to announce a further cut to already sub-zero interest rates later on Thursday and may also announce new asset purchases. That could prompt the SNB to deliver a rate cut of its own.

In addition to hampering Swiss banks’ competitiveness internationally, negative interest rates are “result in bubbles and damage the competitiveness of the Swiss economy long term because they keep unprofitable companies alive artificially,” the sector representative said. “Negative interest rates also put the pensions of Swiss citizens at risk. A further lowering of interest rates would further exacerbate this issue.”

Unlike neighboring Italy, Switzerland hasn’t struggled with non-performing loans on banks’ balance sheets. SNB President Thomas Jordan has also said that it’s low real interest rates globally that are making life difficult for savers.

The SNB’s next policy announcement is scheduled for Sept. 19.


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EUR/GBP Forecast: Euro in the Crosshairs, Can the ECB Deliver on Stimulus?

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EUR/GBP Exchange Rate Muted ahead of ECB Rate Decision

The Euro Pound (EUR/GBP) exchange rate remains rangebound this morning as markets brace for what could be an explosive policy decision by the European Central Bank (ECB) this afternoon.

At the time of writing EUR/GBP exchange rate is almost unchanged from this morning’s opening levels, leaving the pairing trading at around £0.8947.

Can the ECB Live Up to Market Expectations?

All eyes are on the European Central Bank today as it prepares to deliver what could be its most important policy decision in years.

Growth in the Eurozone has slowed significantly in recent months, with the bloc’s manufacturing sector deep in contraction and Germany teetering on the edge of a recession.

As a result economists are expecting the ECB will looking to ease its monetary policy to spur growth, with the announcement of what has been billed as a ‘substantial’ stimulus package.

Expectations are high, but the question on everybody’s lips is what might the package include and if it be enough to lift the Eurozone out of the doldrums, with the risk of the Euro (EUR) falling if the measures disappoint.In a note to clients Commerzbank warned:

‘There is high uncertainty about the extent of the expansionary measures the ECB will implement today; and therefore there is large potential for strong fluctuations in the euro exchange rates.’

This comes amid signs that some members of the ECB’s governing council are resistant to the idea of reopening the ECB’s quantitative easing programme, having weaned the Eurozone economy off of bond purchases less than a year ago.


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Euro pauses before ECB meeting as trade thaw triggers risk rally

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The euro hovered near $1.10 on Thursday as traders waited to see the scale of fresh stimulus expected from the European Central Bank, while China's yuan and Australia's dollar were buoyed by further signs of a thaw in the U.S.-China trade war.

After a difficult August in which concerns about a global recession sparked a scramble into safer assets, investors have been returning to riskier markets this month, encouraged by China and the United States making moves to ease trade tensions and by receding fears of a no-deal Brexit.

China on Wednesday exempted a basket of U.S. goods from its tariffs, while U.S. President Donald Trump said in a tweet he would delay a scheduled tariff hike by two weeks in October.

Export-driven Asian currencies from Taiwan to Australia rallied on the buoyant mood as the world's two largest economies each granted concessions in their heated tariff dispute.

The Japanese yen, the go-to safe haven currency for nervous investors, fell to a six-week low against the dollar. The yen breached the 108 mark and was last at 107.98 yen per dollar, down 0.1% on the day and far from its seven-month high of 104.46 plumbed last month.

The Aussie hit a six-week high and the offshore Chinese yuan rose 0.5% to a three-week high of 7.0737 against the dollar.

Market attention now turns to the ECB, the first of a series of major central bank events, with the Federal Reserve and the Bank of Japan meeting next week.

Investors almost universally expect a rate cut at Thursday's ECB meeting as policymakers try to prop up the region's ailing economy.

The real uncertainty is whether policymakers will restart a quantitative easing program after some members of the governing council in recent weeks expressed doubt about the need to relaunch asset purchases.

SEB strategist Jussi Hiljanen said he expected the ECB to cut the deposit rate by 10 basis points, extend the forward guidance on rates by six months and announce the restart of a quantitative easing program with monthly purchases lower than the market anticipated.

"Such a package of stimulus measures would be a disappointment for the market, pushing long rates higher and EUR/USD higher and steepening the curve," Hiljanen said.

The single currency (EUR=EBS) has shed 3.5% since June and was steady at $1.1017 in early European trade.

The dollar was slightly lower against a basket of currencies at 98.599 (DXY).

Sterling was little changed (EURGBP=D3). The pound rocketed to a six-week high on Monday, reversing last week's losses as investors welcomed the British parliament's move to block a no-deal Brexit on Oct. 31.

Despite the more positive mood in risk assets this week, analysts expressed some caution about its sustainability."Just as the presidential tweet on tariffs this morning has injected more momentum ... we are only one social media posting away from a thoroughly unpredictable President turning sentiment on its head," said Jeffrey Halley, senior market analyst for Asia Pacific at brokerage OANDA.

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3 reasons for EUR/USD to fall over the next 3 months

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I posted earlier on The 3 reasons EUR has bottomed against the USD and yen

An alternative viewpoint is for euro to fall.
Via Citi:
  1. in the near term, euro area activity remains very weak
  2. inflation low
  3. ECB may prepare another round of easing, probably at the 12 September, including more QE
More QE means, says Citi:
  • a negative net supply dynamic in the EA bond market
And, thereofe:
  • we lower our EUR/USD forecast 0-3m target from 1.12 to 1.08 level.


Forex - Yen Weaker, Euro Steady Ahead of ECB Meeting

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The yen was weaker on Wednesday as a cautious risk-on mood dampened safe haven demand, while the euro was steady ahead of the upcoming European Central Bank meeting on Thursday.

ECB policymakers are widely is expected to unveil a fresh wave of stimulus measures to shore up growth and inflation in the euro area economy, which has been hit by the escalating U.S.-China trade war and Brexit.

The ECB could set the tone for upcoming rate-setting decisions by the U.S. Federal Reserve and the Bank of Japan next week, and for the broader global risk appetite.

But concerns have been building that global central banks are reaching the limits of their stimulus options, especially those with negative interest rates and sub-zero long-term sovereign bond yields.

"Given the chance that the ECB fails to match market expectations for easing policy, the balance of risks favors higher EUR/USD and European FX outperformance," ING forex strategists said in an overnight note.

The euro was little changed against the U.S. dollar at 1.1043 by 02:38 AM ET (06:38GMT).

The dollar pushed higher against the yen, climbing 0.25% to 107.78.

Much of the positive mood in recent days has been driven by optimism that high-level talks between U.S. and Chinese negotiators next month can deliver some sort of trade-war breakthrough.

That was tamped down somewhat by White House trade advisor Peter Navarro on Tuesday, when he urged patience about resolving the two-year trade dispute between the world's two largest economies and said to "let the process take its course."

The British pound has managed to hold on to last week's gains after British parliament passed a law compelling Prime Minister Boris Johnson to seek a delay to the Oct. 31 date for leaving the European Union. Sterling last traded at 1.2365.

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AUD/USD stays on course for test of 100-day moving average

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AUD/USD trades at fresh six-week highs as we begin European trading

AUD/USD D1 11-09

The aussie got a boost earlier from the headline pertaining to China here and that saw AUD/USD hit a high of 0.6885 briefly. Currently, price is challenging resistance around 0.6880 from the 50.0 retracement level as seen above.

It has been a solid run for the pair over the past week and buyers don't look like they are letting up just yet.

The 100-day MA (red line) @ 0.6907 remains the key level to watch in all of this as a break above that will see buyers start to exert more control over the pair in the bigger picture. That will potentially put 0.7000 back on the map with the Fed to come next week.



Forex - Euro Steady Ahead of ECB, Sterling Slides

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 The euro was holding steady on Monday as investors looked ahead to a European Central Bank meeting later this week at which new stimulus is expected, while the British pound was pressured lower by Brexit uncertainty.

The euro was little changed at 1.1029 03:41 AM ET (07:41 GMT) after falling 0.1% on Friday.

The ECB is all but certain to approve new stimulus measures on Thursday to boost an ailing economy, but the exact composition of the stimulus package is still unclear.

While an interest rate cut seems like a done deal the big question is whether a resumption of asset purchases will be part of the package after some policymakers said it would be premature.

Heightened expectations for ECB easing come as other global central banks move to ease monetary policy, including the People's Bank of China, which on Friday cut the amount of cash that banks must hold as reserves.

Policymakers are rushing to bolster growth as a wide-ranging dispute between the United States and China over trade policy drags into a second year, increasing the risk of recession.

The U.S. Federal Reserve will continue to act "as appropriate" to sustain the economic expansion in the world's biggest economy, Fed Chair Jerome Powell said Friday in Zurich, confirming expectations for a rate cut at the Fed's next policy decision on Sept. 18.

Sterling traded at 1.2254, down 0.2% for the day.

The U.S. dollar index against a basket of six major currencies was little changed at 98.40.

The dollar traded at 106.97 yen, little changed from Friday.

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Forex: Traders Look to Beijing for New Stimulus

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The U.S. dollar was marginally higher Monday morning and the yuan strengthened somewhat as weak export data from China suggested Beijing might introduce new stimulus measures.

The US Dollar Index that tracks the greenback against a basket of currencies was up 0.03% to 98.42 by 10:12 PM ET (02:12 GMT).The dollar got some bad news on Friday on a weaker than expected nonfarm payrolls report that reported 130,000 new jobs, compared to the 150,000 Wall Street had been expecting.

The People’s Bank of China (PBoC) set the reference rate for the yuan at 7.0851, compared to Friday’s fix of 7.0855.

Chinese exports fell by 1% in August, defying expectations for a 2% increase. Shipments to the U.S. slowed down sharply as a result of the ongoing trade dispute between the two countries. The new data has led to speculation that Beijing will introduce stimulus measures beyond the cut to banks reserve requirement ratios (RRR) of 50 basis points or 100 basis points for some banks, introduced on Friday.

The USD/JPY pair traded down 0.05% at 106.85. Japan’s economy grew by 1.3% between April and June, according to data from the Cabinet Office released today. The data matched the expectations of economists polled by Reuters. The rate translates into quarter-on-quarter growth of 0.3%.

The AUD/USD pair was up 0.07% at 0.6851 while the NZD/USD pair was up 0.05% to 0.6428.

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