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US-China trade agreement hopes now dashed: Peter Boockvar

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Optimism that negotiations between the United States and China over recent trade tensions has taken a hit and investors are getting impatient, according to Wall Street veteran Peter Boockvar.

Boockvar’s comments came after President Donald Trump said late on Thursday that he had told the U.S. Trade Representative to consider $100 billion in additional tariffs on Chinese products given what he said was China’s “unfair retaliation.”

“Any hope that this spat with China was going to stay contained with an ultimate agreement at the end of the day just got thrown under the bus,” Boockvar, who is chief investment officer at Bleakley Advisory Group, said in an email following the most recent development in an escalating tit-for-tat on U.S.-China trade relations.

“Markets are deservingly losing patience with the administration’s approach to this,” he said.

U.S. Trade Representative Robert Lighthizer said those new tariffs would not be imposed until a public comment process was concluded.

Despite that attempt to downplay tensions, U.S. stock index futures tumbled on the back of Trump’s statement, with Dow Jones industrial average futures indicating a more than 400-point drop at one point.

As of 8:25 p.m. ET, the implied open for Dow futures was more than 350 points lower.

Trump’s statement came after China on Wednesday unveiled a list of 106 U.S. products, including soybeans and cars, that face additional tariffs, although no start date was announced.

That, in turn, came hot on the heels of the Trump administration’s announcement that it intended to target a list of Chinese imports for what it deemed unfair trade practices.

Boockvar told CNBC on Wednesday that China’s retaliatory tariffs would further weaken the market, raising the cost of doing business for American companies and diminish business for the U.S.

— CNBC’s Patti Domm and Kellie Ell contributed to this report.

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Prepare for more volatility in the Chinese yuan, regulator says

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BEIJING — China’s foreign exchange regulator told businesses Friday to prepare for more volatility in the yuan.

The Chinese currency, also known as the renminbi, strengthened roughly 1% this week against the U.S. dollar to levels not seen since July 2018. Less than five months ago, the yuan was at its weakest against the greenback since early 2008. Although that is based on a midpoint set by the central bank, the People’s Bank of China, Beijing has been allowing markets to play a greater role in the exchange rate.

One-year implied volatility of the yuan has climbed to 5%, versus less than 2% for previous years, indicating a basis of “increased flexibility” in the exchange rate, State Administration of Foreign Exchange spokeswoman Wang Chunying told reporters on Friday.

“In face of exchange rate fluctuations, businesses should strengthen their risk prevention awareness,” Wang said, according to a CNBC translation of her Mandarin-language remarks. She said that rather than expect one-way strengthening or weakening of the yuan, businesses should prepare for two-way moves in the exchange rate, and hedge appropriately without speculating.

Chinese yuan daily midpoint fix vs. USD (2008-2020)

Note: Lower figures reflect stronger yuan vs. USD. Source: Wind Information.

On Friday, the official daily midpoint set by the central bank was 6.6703 yuan versus the U.S. dollar, for a gain of more than 4% versus the greenback for the year so far.

The recent strength in the yuan comes as the U.S. dollar index has fallen to its lowest since early September. While the yuan’s exchange rate versus the greenback is closely followed, officials have previously emphasized that the currency’s value is more accurately reflected by a government-run index of the yuan versus a basket of currencies. The index’s latest weekly print from Oct. 16 was the highest since March.

When asked by CNBC last week about the outlook for the Chinese currency, the PBoC monetary policy department head Sun Guofeng said the central bank would maintain a flexible and stable exchange rate.

“The slight appreciation in the yuan’s exchange rate is the natural reflection of the good trajectory of (China’s) economy,” Sun said at a press conference, according to a CNBC translation of his Mandarin-language remarks.

In August 2015, a surprise devaluation in the yuan by more than 4% over five days shocked global markets. The PBoC has been trying to strike a balance between keeping the yuan weak enough so Chinese goods remain attractively priced for overseas buyers, while preventing domestic capital from flowing too quickly out of the country to stronger currencies. Longer-term, Beijing would like the yuan to be used more internationally, versus the roughly 2% of global foreign exchange reserve assets it holds currently.

Analysts expect China’s relatively robust economic growth and market size will attract more foreign capital in coming years.

The International Monetary Fund forecast last week that China’s GDP will grow 1.9% this year as the only major economy to expand in the wake of the coronavirus pandemic. Covid-19 first emerged in the Chinese city of Wuhan late last year, before accelerating its spread in the country, and subsequently overseas.

The IMF predicts the U.S. economy will contract 4.3% this year, with global growth falling by 4.4%.

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Euro zone economic activity shrinks again as Covid second wave surges

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A worker at a Paris bar sweeps up after closing early to comply with new Covid-19 restrictions.

Kiran Ridley | Getty Images News | Getty Images

LONDON — Economic activity in the euro zone shrunk in October as coronavirus restrictions returned to the region, preliminary data showed on Friday.

The flash euro zone PMI composite output index, which looks at activity in both manufacturing and services sectors, dropped to a four-month low in October to 49.4, versus 50.4 in September. A reading below 50 represents a contraction in activity.

The latest figures showed that manufacturing has remained somewhat resilient over the last month, but activity in services has fallen to a five-month low.

“The euro zone is at increased risk of falling into a double-dip downturn as a second wave of virus infections led to a renewed fall in business activity in October,” Chris Williamson, chief business economist at IHS Markit, said in a statement.

He added that the data “revealed a tale of two economies, with manufacturers enjoying the fastest growth since early-2018 … but intensifying Covid-19 restrictions took an increasing toll on the services sector.”

New restrictions

German divergence

Germany’s composite output index reached 54.5 in October given the importance of its manufacturing industry for the overall economy.

“The divergence is even starker by country. While Germany is buoyed by its manufacturing sector booming to a degree exceeded only twice in almost 25 years of survey history, the rest of the region has sunk into a deepening downturn,” Williamson also said.

The challenges that the euro zone is facing in the wake of the pandemic are putting additional pressures on the European Central Bank. Economists believe that further monetary stimulus is on the way before the end of the year.

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