Thread by @Trinhnomics

Good morning - Korea Q2 2019 GDP bounced back from contraction to +1.1% qoq sa & 2.1%YoY (our estimate is 2.2% for the entire 2019);

But don't get excited, as Q3 2019 data so far has been weak. SK Hynix, a major semiconductor producer said expects 'significant' 2020 investment.

Markit data of US manufacturing PMI shows weakness (down to 50 from 50.6) but services bounced to a 3-month to 52.2 from 51.5 in June. Composite rose to 51.6 vs 51.5

Overall, this should keep the USD strong as US data remains resilient. ECB meeting today is very key.

Expectations of the ECB is that the ECB will set dovish expectations for September, which means paving way for life deeper below zero ❄️🌨️🥶

EUR doesn't like the collapse of German manufacturing PMI b/c it means the hurdle for life deeper below zero by the ECB is cleared 🏇🏻👌🏻

Don't think for a second what happens to Europe has no impact on Asia. It definitely does as a weaker EUR puts pressure on Asian exporters as ECB et al tries to export deflationary impulses to the rest of the world via FX (imports expensive & exports cheap).

So, dun dun dun🥁

In other words, if China is using the current account as a first line of defense, then the ECB is not standing idly to watch its exporters losing competitiveness. Hence, a weaker EUR is desired/engineered. Don't forget that Germany has a BIGGER current account surplus than China.

Questions after the ECB meeting:
a) If it is indeed taking the dovish path 🕊️💶🇪🇺, then what will the Asian central banks do? Remember the last time the ECB & BOJ eased massively, the CNY strengthened too much & so ultimately had to be depreciated & then other Asians did
b) Fed..

So the sequence of events go like this:

China slowdown 📉➡️China easing & helping & that means more domestic consumption/production but less imports 📉➡️Economies that depend heavily on Chinese demand 📉(Korea, Singapore, Germany)➡️They (ECB) then ease & help to boost domestic.

But their easing will make it hard for China to export its deflationary impulses (too many cars & not enough buyers or steel etc) so easing & helping by raising import duties (steel) & more protection & ultimately FX➡️Other Asians have no choice but to ease vis a vis the CNY ...

b) What about the Fed? Its dollar lubricates or sometimes throws sand in the global econ due to its role. B/c of this, even if services are📈& the econ is mostly services, the Fed has to think about manufacturers &exporters & the currency war (everyone trying to export deflation)

The Fed is entering this end of July meeting w/ a difficult decision. Why? Unlike the ECB, which has abysmal data to conclusively say the economy needs help (even if the help is not necessary one that is needed), the Fed has mixed data, but definitive bad econ data externally...

EUR/USD at 1-yr low today in anticipation of the ECB paving path for life deeper below zero. Bund yields also feel the chill.

Will the ECB meet expectations of a dovish tone? Will find out soon enough at 745pm HKT

1.111 😮

ECB done ✅, now it is the Fed’s turn🧘🏻‍♂️. Currency war tweets to be continued after my 🏊‍♀️ 🤗