Just when the markets started to rejoice in the fact that there had been no recent escalation of trade wars and then the silence is broken. Early in the Asian trading day the US released a list of additional tariffs which are assumed to total close to $200bn. This number has wobbled equities and put a renewed bid under government bonds. Shanghai and HSI (Hang Seng) were worst hit closing down -1.8% and -1.3% respectively. The Shanghai has been trading lower for much of the year and still remains in a negative longer trend for the foreseeable future. The Yuan has been moving weaker for the past month, but the pace is not sufficient to cover the equity slide. We see almost the opposite in India where the SENSEX is climbing but at the cost of the INR. Again, rumours that the RBI were supporting the currency helped towards the end of the day, which only stalled the weakening trend. Interesting price action in Japan as a weaker Nikkei and regional equities failed to inspire the dash for the Yen. Late in US trading the Yen continues to struggle and is now trading with a 112 handle. This looks as though the safe-haven bid is finally fading.
European markets followed Asia’s lead declining in the trade concern. NATO and OPEC headlines continue to favour the USD. Again, we see the DAX heavily hit on any mention of trade talks. Shouldn’t be a surprise to anyone especially if you look at auto’s. DAX and CAC closed -1.25% with peripheral markets losing a similar percentage. The currencies were holding in well, but then as Europe leaves for the football, the USD finds its feet. Interesting that gold remains heavy and a sure sign this could be something more serious is the fall in industrial metals and energy prices. The money continues to flow towards the US and so tomorrows CPI will be watched extremely closely. This week is targeted as a DC (Directional Change) for both Euro and GBP so lets see if the data accelerates dollar appreciation.
US indices where pretty much tied into a narrow range for much of the day, even though it was 200 points lower (DOW). This the reaction to after hours reports of proposed additional trade tariff had already hit Asia and consequently, US futures too. Its still a busy week for President Trump who arrived in Europe to state his case over NATO costs and a couple of quotes regarding Germany’s energy relationship with Russia. From there he then flies on to the UK where he’ll meet the queen. Tomorrow we have US CPI which could restore some market momentum assuming we get an impressive print. Forecasts are around the +0.2% M/M with Y/Y 2.3% from a previous 2.2%.
Japan 0.04%, US 2’s closed 2.58% (+1bp), 10’s 2.85% (-2bp), 30’s 2.95% (-2bp), Bunds 0.32% (u/c), France 0.65% (u/c), Italy 2.68% (+2bp), Greece 3.83% (+4bp), Turkey 17.61% (+71bp), Portugal 1.75% (+1bp), Spain 1.30% (+3bp), and Gilts 1.29% (-1bp).