US and China strongmen crush the Australian dollar

DXY and CNY were up overnight, EUR down:

The Australian dollar held near the lows versus DMs:

EM’s continue to outperform it:

Gold was stable:

Oil too:

Metals lifted a little:

Miners more so:

And EM stocks:

US junk was also firm, EM not so much:

Treasuries were belted:

Bunds too:

Aussie bonds held near the highs:

As stocks rebounded solidly:

As usual it is all trade war, this time better news for markets, via AFP:

US officials have issued a 90-day reprieve on their ban on dealing with Chinese tech giant Huawei, saying breathing space was needed to avoid huge disruption.

A Commerce Department filing said the delay does not change the ban imposed by President Donald Trump on national security grounds, an action with major implications for US and Chinese technology firms.

Instead, it grants a temporary license that will allow Huawei to continue doing business with American firms.

Underneath that, the ripples are everywhere, at Bloomie:

Huawei has already been excluded from the “cores’’ of many European telecommunication networks — that is, the layer privy to sensitive information and control privileges. But it’s become a dominant force in the lucrative remaining segment mainly made up of radio antennas.

The new sanctions have inflamed the dilemma faced by phone companies: whether to stick with Huawei through the growing storm, or bite the bullet and abandon it in favor of other vendors like Nokia OyjEricsson AB or Samsung Electronics Co.

Ditching the Chinese company and switching to these firms could mean ripping out the Huawei-built 4G foundations they’d planned to bolt its 5G radios onto, a move that they say would cost billions as well as choke competition and innovation in the market.

More at Bloomie:

Plans to target the Chinese telecommunications equipment maker over security concerns had been on the table for months and included possibly subjecting Huawei to economic sanctions, according to the people, who asked not to be identified discussing internal deliberations. But the decision to curtail the Shenzhen-based company’s access to American suppliers unfolded quickly once trade talks broke down, setting off a scramble to implement the measures, the people said.

The Commerce Department action last week requires American suppliers of Huawei, a crown jewel of Chinese manufacturing, to seek U.S. government permission to do business with the company.

The decision touched off a massive disruption in technology supply chains, hitting some of the biggest component-makers as Intel Corp., Qualcomm Inc. and Broadcom Inc. told their employees they won’t provide products to Huawei until further notice.

Banned. Not banned. Banned. Everybody is going to have to risk manage Huawei henceforth. It’s business is in deep trouble.

Which is not making China happy. Mad Xi is on the war path, at SCMP:

Chinese President Xi Jinping has called for the nation to embark on a new Long March and “start all over again”, in the most dramatic sign to date that Beijing has given up hope of reaching a trade deal with the United States in the near term.

Xi is in Jiangxi province for his first domestic tour since the escalation of the trade war two weeks ago. Jiangxi is where China’s defeated Red Army started its fabled Long March in 1934, and Xi’s choice of destination is being viewed as an effort to invoke a spirit of endurance and to rally public spirit amid rising tensions with Washington.

“We are here at the starting point of the Long March to remember the time when the Red Army began its journey,” Xi told cheering crowds on Monday, in footage posted on state broadcaster CCTV’s website on Tuesday. “We are now embarking on a new Long March, and we must start all over again.”

And Bloomie:

Meanwhile, the US has plenty more tariff bullets to fire as well:

Martin Wolf summarises for us

The trade war is also turning the US into a significantly protectionist country, with weighted-average tariffs possibly soon higher than India’s. A paper from the Peterson Institute for International Economics states, that “Trump is . . . threatening tariffs on China that are not far from the average level of duties the United States imposed with the Smoot-Hawley Tariff Act of 1930.” Tariffs may even stay this high, because the US’s negotiating demands are too humiliating for China to accept. These levies will also lead to diversion to other suppliers. Tariffs may then spread to the latter, too: bilateralism is often a contagious disease. Contrary to Mr Trump’s protestations, the costs are also being borne by Americans, especially consumers and farm exporters. Ironically, many of the worst hit counties are in Republican control.

Some might conclude that the high costs mean that the conflict cannot be sustained, particularly if stock markets are disrupted. An alternative and more plausible outcome is that Mr Trump and China’s Xi Jinping are “strongmen” leaders who cannot be seen to yield. The conflict will then either remain frozen or, more likely, worsen as relations between the two superpowers become increasingly poisoned.

I agree with that though I’m more sympathetic to US motives. China has shown for many years that it uses trade deals as a way to cheat. If it won’t sign up to more binding constraints then what else can the US do? This is about more than just El Trumpo’s pride. It is a systemic clash.

So, Chinese growth will remain under pressure. It must ease monetary policy. The yuan will fall, making things worse in the trade war, and taking the Australian dollar down with it.

Comments

  1. St JacquesMEMBER

    My little collectiion of USDs just gets better and better. Thankyou very muchly USA.

    Meanwhile McCrann at the Murdoch rag is leading a corporate media campaign against APRA to loosen lending standards even more coz it’s a great thing for the banks to pump massive property bubbles foreva and eva. Ever heard of the GFC, US,Ireland, Spain, Euro crisis Japanese bubble, etc, etc, etc, Crann? You’re a fairdinkum Genius. Truly. Anyway the horse bolted long ago so might as well give this massive bubble one more, shot. I mean, who knows, we might be able to offset our bubble assets on to the young and stupid immigrants. Right?

    • proofreadersMEMBER

      McCrann is merely saying for Captain Phil what he would be too scared to say on his own account – the bubble must be preserved and enriched whatever the cost?

      • St JacquesMEMBER

        btw That means the RBA has launched a War in Tongues against APRA through the MSM.

      • Bad things happen when the kids have affordable homes.. like they start family formation and then there is no need for lots of Jimmy Grants. But locals don’t like working under slave like conditions.

      • Can someone explain to me how you keep the bubble inflated while suppressing wages (high immigration), cut IRs thus kicking the legs out under the AUD and highly likely to give inflation a kick along (petrol etc, and I don’t see how retailers etc can wear the exchange rate costs), so effectively a wage cut and boost house prices?

        I can see a halt to the falls or maybe a small increase, but nothing that can hold prices up or substantially increase them over the next 2-3 yrs. Further down the track there can surely be nothing but pain!

      • @Dennis yeah but it hasn’t stopped them lowering rates before lol. What would they stop now?

  2. Ronin8317MEMBER

    Emperor Xi has no clothes, and the Chinese mercantist model of growth through export is on its last legs.

    Huawei have become the second biggest mobile phone maker in the world ahead of Apple. The focus on the company is not an accident : the US is telling China this will not be allowed. This is a targetted assassination of a company, and will remain true even if the issue with tariff is resolved.

    • Ronin8317MEMBER

      Switching import from China to somewhere else won’t make it protectionist, just anti China.

  3. To all those greedy companies who thought it was ok to move production for cheap/slave labour, suffer. I hope China fight back. This whole thing disgusts me. We have unemployable youth here but no company wants to start or keep business here but then cry foul when they move overseas and their IP is ‘stolen’. It is called competition! And that silly fool of a president is using US clout to fight Apple’s wars. Get me a bucket!