The Non-Farm payrolls data came out lower than expected on Friday night but it did little to dim optimism in the markets as the US indices continued to drive higher. The 10 year yields did drop off a touch but the dollar remained strong as once again sentiment dominated market moves over fundamental data. The US administration was on the front foot again over the weekend as both President Trump and his economic adviser Larry Kudlow upped the ante in the Trade War of Words with China, the president claiming that tariffs are working well and Kudlow calling China ‘a lousy investment’.
China made moves on Friday to slow the depreciation of it’s currency by imposing a 20% reserve requirement on some forward transactions, this came swiftly after PBOC agent banks were seen selling UsdCny in the market after the rate had approached 6.9000. Some members of the US administration will see this move as a win for recent tariff threats as the depreciation of the Yuan had been heavily criticised by the President and his advisors. However most market participants will probably see this as a smoothing operation rather than anything that will stop the trend of Yuan cheapening over the medium term in the current environment.
Looking ahead to the rest of the week’s trading and it’s relatively quiet in terms of fundamental economic data releases, especially when compared with last week. There’s little in the way of anything today and the markets focus will turn to the antipodean central banks in the next few days as first the RBA and then the RBNZ make their latest rate announcements. Both are expected to keep rates unchanged and traders will be hoping for some change in forward guidance to add some interest to the events, although those hopes will probably be in vain as market expectation is for more of the same from both camps.
So once again sentiment is set to dominate market direction and investors will be keeping a very close eye on any fresh developments in the US-China trade situation as well as the other Geo-Political factors that are influencing moves in the current environment.