The trade war is costing the Chinese stock market the title of the second largest one in the world
Thanks to the moderately positive data from US employment for July, the S&P500 has closed the fifth consecutive week in the green zone, marking the longest winning streak since December. At the same time, the capitalization of the Chinese stock market has declined to $ 6.09 trillion, for the first time since 2014 second to its counterpart from Japan ($ 6.14 trillion). The Celestial Empire is losing its status as the second largest ($ 31.04 billion) stock market in the world after the US, and Donald Trump and his team call this one of the signs of Washington's victory in the trade war with Beijing. According to Larry Kudlow, Asia's largest economy is weak, the currency is weak, people are leaving the country, and the US president intends to fight till the end.
China says that the US is going to destroy the economic sovereignty of the country and make it its vassal. In response to the threat of the leader of the White House to increase the tariffs for $ 200 billion imports from 10% to 25%, Beijing has promised to introduce additional duties from 5% to 25% for 5,207 goods supplied from the United States for a total of $ 60 billion. Taking into account previously voiced restrictions, the total the value of the indicator will reach $ 110 billion, which is equivalent to 85% of the US imports into China. Washington, of course, has much more opportunities, but its opponent is ready to use other measures. The trade conflict intensifies, which plays into the hands of the greenback.
At the same time, China is trying to contain the fall of the yuan by using 20% of the reserve requirements for banks selling dollars to their customers under forward contracts. Beijing clearly does not want a repeat of the story of August 2015 and January 2016, when it took a titanic effort to contain the foreign capital frightened by the devaluation of the local currency.
Along with the escalation of the trade conflict, the EUR/USD bears have had support from a moderately positive data from the American labor market. The July NFPR may have failed to meet expectations, but the figures for May-June were revised upwards by 59 thousand, and the average for three months shows an impressive +224 thousand. Unemployment returned to the 18-year-old bottom, and 2.7% and a 3% increase in average wages per hour and week indicates a steady increase in inflation in the future.
Dynamics of wages and inflation in the US
Source: Wall Street Journal.
The USD index bears may believe that the rally of the greenback is losing momentum, that many factors are already priced in its quotes, but what should one buy, if not the dollar? European statistics are not encouraging, but as September approaches, when the Italian parliament leaves the holidays and will prepare for consideration, most likely, the problematic budget of the republic, political risks will not give the euro a rest. Yes, legislators have a vacation, but in the thin market, any news can provoke sales of Italian assets and strike a blow to the euro.
EUR/USD continues to slide in the direction of important supports at 1.1535 and 1.151, the retreat from which will allow us talking about the development of medium-term consolidation. On the contrary, the breakthrough will lead the bears into operational space.
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Price chart of EURUSD in real time mode
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