German Unemployment Spikes; Why Yen Crosses Could Tumble More

Market Drivers May 29, 2019
GE unemployment spikes
BOC on tap
Nikkei -1.21% Dax -1.32%
Oil $58/bbl
Gold $1284/oz.

Europe and Asia:
EZ German Unemployment 60K vs. -8K eyed

North America:
CAD BOC Statement

Another night of risk off flows in FX with Asian and European bourses all lower by more than 1% adding to the downward pressure in USDJPY which hit a low of 109.15 in early Asian dealing but so far has been able to old above the 109.00 figure.

The escalation of tensions between China and US is starting to reach a fever pitch with China now stating that US has no right to name anyone a currency manipulator – a far less diplomatic language than it usually uses and a sign that Chinese may be moving to a much more confrontational stance with US on the issue of trade.

One issue that has many traders worried is that China could curtail the export of rare earth materials which are crucial components in almost all high tech manufacturing. Although these materials are actually plentiful in the world, the process to refine them is so environmentally taxing that only China has the capacity to produce them in scale. To replace that supply would take years of investment and could disrupt manufacturing greatly.

However, perhaps the greatest threat to risk flows over the near term is the fact that China is now the biggest or the second biggest market for US multi-nationals. A soft boycott of US goods by Chinese consumers could devastate the earnings of many S&P companies who rely on China for marginal growth. That, in turn, creates a scenario for multiple compression and much steeper selloff in equities which will weigh on FX as well. Yen pairs continue to trade near session lows and could push even lower if US equities begin a sell-off in earnest as the day proceeds.

Meanwhile, on the eco front, the unemployment data out of Europe shocked to the downside with joblessness rising by 60K vs. -8K eyed. Much of the gain was due to a one-off statistical change, but still the normalized data showed a gain of 15K in unemployment indicating that German economy is feeling the impact of the trade war. EURUSD held tight at 1.1150 for most of the night but could push lower in North American trade if risk off flows accelerate.