Asian stocks ease, dollar near two-week lows on Trump comments

Wednesday, 25 Jul, 2018

Trump's combative stance has compounded fears of an all-out trade and currency war, with the U.S. slapping tariffs on steel and aluminium from the EU, Canada and Mexico, in addition to levies on goods from China worth tens of billions of dollars.

But in a more distant perspective, the sharp decline in the yuan still hampers the Chinese economy. The yield on the benchmark 10-year Treasuries lost a little over 1 basis point to 2.88 percent, the super-long 30-year bond yields also slipped almost 1 basis point to 3.02 percent and the yield on the short-term 2-year traded almost 1-1/2 basis points lower at 2.58 percent.

Also on Monday, in an unexpected move, China's central bank lent 502 billion yuan ($74.36 billion) to financial institutions via its one-year medium-term lending facility (MLF), stepping up efforts to support lending as growth slowed. The Reuters report also added to the yen's strength, which was last up 0.3 percent at 111.07 per dollar. The threat of a currency war on top of a trade war seems that much closer, even though Trump himself categorically said "no" when questioned about the prospects of a currency war.

May said the recent strength in dollar is largely due to weak growth in the rest of the world compared to the U.S. "Premier Li may be concerned about the negative impact of deleveraging on growth", ANZ economists Raymond Yeung and Betty Wang said in a note.

The fall in the dollar came as U.S. president Donald Trump attacked Washington's main trading partners for their currency policies on Friday.

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The White House decision on increasing tariffs on goods from China and European Union raised concerns about protectionism in global economy and are projected to chance balances in global trade.

The Japanese 10-year government bond yields hit a 6-month high as investors' speculation rose over a possible change in the monetary policy by the Bank of Japan (BoJ) ahead of the central bank's two-day meeting on July 30-31.

Last week, US Treasury Secretary Steven Mnuchin said the US government is monitoring the yuan's weakness and would assess whether the redback has been manipulated. The Shanghai Composite index .SSEC and the blue-chip CSI300 index .CSI300 both closed up 1.6 percent. It was last up 0.1 percent at $1.1741.

Trump's comments "are very direct and aggressive, and the market has seen that he has pushed forward regarding tariffs", said Shahab Jalinoos, Credit Suisse's head of global FX strategy. "Commodities are also mostly trading higher", JPMorgan analysts said in a note to clients.

China operates a managed floating exchange rate. Gold may capitalize on the dollar's weakness if trade tensions put the currency under additional downward pressure.