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When tariffs are not enough

No manipulation please

Thirty-odd years ago currency manipulation was all the rage. The Plaza Accord in 1985 was an agreement by G5 to depreciate the US dollar. Two years later, the Louvre Accord G6 agreed to stop that depreciation. Today, America very much disagrees with currency manipulation.

Yesterday the US Treasury accused China of being a currency manipulator when it allowed the Yuan to weaken beyond ¥7 per US dollar. Never mind that the Chinese economy is suffering as a result of US tariffs. In a trade war, logic falls by the wayside.

Coming hard on the heels of the US President's imposition of a new 10% tax on all so-far unaffected imports from China, the prospect of yet more sanctions sent markets into a tailspin. With the prospect of a Sino-US trade deal now apparently out of the window, the safe-haven Swiss franc and Japanese yen sped to the front of the field while the Australian and NZ dollars brought up the rear.

Who's warning whom?

This morning the People's Bank of China surprised the market when it did not extend the yuan's downward move. Its actions went some way to allaying fears that the trade war might escalate out of control and the safe-haven yen abruptly lost its appeal.

In a classic hero-to-zero move, the yen became the weakest-performing major currency over the last 24 hours. That is not to say it will remain down. If Trump has indeed pushed Xi beyond his bounds of tolerance, there is little prospect of getting Sino-US relations - and therefore global trade - back onto an even keel any time soon.

There were, though, a few rays of light from yesterday's economic data. Every one of the dozen or so purchasing managers' index readings from Europe and the States was comfortably above the breakeven point at 50.0. For a second month, Germany came top with a 54.5. Britain's 51.4 was a good point above forecast at a nine-month high.

All about the antipodes

Overnight it was New Zealand and Australia that monopolised the news. The NZ employment data were better than expected. The Reserve Bank of Australia kept monetary policy unchanged and of course Australia was celebrating a lucky win at Edgbaston.

NZ unemployment fell from 4.2% to 3.9% in the second quarter, a far better outcome than the predicted rise to 4.3%. The RBA held its Cash Rate steady at 1.0%, as expected. In its statement, the bank said it would "ease monetary policy further if needed to support sustainable growth". Analysts see a 0.5% Cash Rate as a possibility by the end of the year. The NZ and Australian dollars are almost unchanged against sterling.

Overnight the British Retail Consortium delivered another mournful retail sales figure. On a like-for-like basis, sales were up by just 0.1% from July last year. The only statistic of any importance today from Europe or North America is German factory orders. They went up by 2.5% in June, five times as much as expected.

GBP: Services at nine-month high

GBP: Services at nine-month high

CNY: US reacts to 11-year low

CNY: US reacts to 11-year low

EUR: Strong German factory orders

EUR: Strong German factory orders

AUD: Cash rate unchanged, scope for further cuts

AUD: Cash rate unchanged, scope for further cuts

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