US-China currency fight; Market scare; Fed warning

Posted August 6, 2019 5:08 a.m. EDT

— 1. Currency fight: A currency dispute between United States and China has brought the fight between the world's two largest economies to new extremes.

The Trump administration on Monday designated China a "currency manipulator" after Beijing let the yuan slide to the symbolically important level of 7-to-the-dollar for the first time in more than a decade.

"The move is another escalation in a deteriorating bilateral relationship that looks set to get even worse," said Julian Evans-Pritchard, senior China economist at Capital Economics.

The People's Bank of China on Tuesday fixed the currency at its weakest level in 11 years, but it also announced plans to issue central bank bills that could prop up the yuan.

The big question now is whether the Trump administration takes further action.

President Donald Trump recently said a currency intervention, in which the United States moves to devalue the US dollar, remains on the table.

2. Market scare: The currency clash has sent global stocks plunging, though markets are beginning to show signs of relief.

US stock futures point higher after markets suffered their worst day of the year Monday. The Dow is set to rise almost 200 points, or 0.8%, while the Nasdaq could jump 1.1% and the S&P 500 could rise 0.8%.

Stocks in Asia pared some early losses but still finished lower. Hong Kong's Hang Seng dropped 0.5%, and Japan's Nikkei shed 0.6%. The Shanghai Composite fell 1.6%.

European markets opened mixed. Britain's FTSE 100 fell 0.6% in early trading, while Germany's DAX increased 0.2%.

The Dow closed down 767 points, or 2.9%, on Monday. The S&P 500 fell 3%, and the Nasdaq plunged 3.5%.

3. Fed warning: Four former governors of the Federal Reserve have warned that an erosion of the central bank's independence will undermine financial markets and damage the economy.

Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen wrote in an op-ed published by the Wall Street Journal that the US central bank must be able to make decisions "based on the best interests of the nation, not the interests of a small group of politicians."

The former central bankers do not mention Trump by name but the president has repeatedly criticized the performance of his own appointee to the top job at the Fed, Jerome Powell.

Trump has publicly called for Powell to cut interest rates, and has declined to rule out the possibility of demoting him. The Fed cut rates last week for the first time in 11 years.

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4. Coming this week:

Tuesday — Disney and Papa John's earningsWednesday — Reserve Bank of India rate decision; US crude oil inventories; SoftBank, CVS, Lyft, Roku and Zillow earningsThursday — China imports and exports; AMC Entertainment, Viacom, CBS, Activision Blizzard, Uber and Yelp earningsFriday — China inflation data; Japan GDP; US Producer Price Index