Asia shares slide as US-China trade talks shelved

BANGKOK (AP) — Shares have fallen in Asia after China reportedly rebuffed a plan for talks with the U.S. on resolving their dispute over trade and technology. The slow start to the week followed a mixed close Friday on Wall Street, where an afternoon sell-off erased modest gains for the S&P 500 that had the benchmark index on track to eke out its own record high for much of the day.

 

ANALYST’S VIEWPOINT: “The weekend headlines have not been a blessing for ‘risk sentiment,’” Stephen Innes of OANDA said in a commentary. He added, “the optimist in me is siding on ‘this too shall pass,’ but with markets closed in Japan, China and South Korea as a large part of Asia celebrates the Mid-Autumn festival, it impossible to gauge sentiment in these drastically diminished liquidity conditions.”

 

Tampa Bay Times

OANDA Trading Asia markets update

Asia markets update

The weekend headlines have not been a blessing for ‘risk sentiment” and while the optimist in me is siding on this too shall pass. But with markets closed in Japan, China and South Korea as a large part of Asia celebrates the Mid-Autumn festival, it impossible to gauge sentiment in these drastically diminished liquidity conditions.

While Hong Kong markets are trading poorly but it difficult to separate the wheat from the chaff after last Friday the Pboc announced they would issue T-bills via the HKMA in Hong Kong money markets, which implies driving local interest rates higher. But of course, shelving the US-China trade talks is not rated highly for local risk sentiment either, a bit of a double whammy of sorts today for Hong Kong.

However, it was unlikely that either the US or China was going to pull a rabbit out of the hat before the US midterm election anyway. However, traders remain in wait and see mode while treading rather gingerly in today Asia session. But indeed, this discussion will likely continue throughout the 24-hour trading cycle.

But overall, no one is taking anything for granted and certainly won’t underestimate the possibility of the US announcing reviews of further China tariffs at some point in time given the Trump administration ‘modus operandi’ of applying non-stop pressure.

Currencies

More risk-sensitive currencies, especially EM are feeling the pinch from weekend headlines bluster, but liquidity is extremely thin and likely contributing to some outsized moves. For reference, G-10 volumes are around 50 % lower as per EBS data. But what action we are seeing is small AUD selling.

Indian Rupee

Not too surprising the INR back under pressure from rising crude prices and domestic credit wobbles after one of the large Non-Banking Financial Companies missed an interest payment last Friday

Oil Markets

Oil investors are trading the weekend news very favourably, Saudi Arabia and Russia ruled out any expeditious supply increases at the Algeria meeting while decidedly ignoring U.S. President Trump’s call to increase supplies and ease price pressures.
Not a great deal of oil market noise today, but traders are quickly pivoting to US inventories data with some small discussion around reports that Cushing Oklahoma delivery point may have declined further in the week ended September 21. But ultimately all these noises pale in the lead up to November 4 Iran sanctions, which continue to underpin sentiment

OANDA Trading Podcast: BFM 89.9 Kuala Lumpur

EM Asia: Next weeks discussions

By Stephen Innes Head of Trading Asia @steveinnes123

EM Asia sentiment continues to improve; regional equities were trading very well on a  weaker dollar. ASEAN markets do enjoy a capital inflows bump when the US dollar is broadly weaker.

Bloomberg China Calls Off Trade Talks, Won’t Go to Washington Until After Mid-Terms

China

In addition to the significant headlines risk around the FOMC and trade war, the local discussion will continue centring around Premier Li Keqiang ’s comments on import tax cuts, and that policymakers have no intention to weaponise the Yuan in a trade war.

By cause in effect, his comments appear to have improved investor sentiment, as the Shanghai Composite ended up having its best week since 2016, although market chatter is suggesting Friday afternoon extension was nudged on by intervention to reach that high-water mark and boost investor conviction ahead of the long weekend. Nonetheless, we will leave that discussion for another day on how China market intervention, if right in this instance, does tend to hurt the credibility of their intentions.

But let’s not lose sight of the fact that in the absence of a trade deal or a clear signal that one is about to happen post-November G-20, the policy hawks in the Trump administration will be hell-bent on imposing 25 % tariff on 200 billion if not doubling down to 400 billion.

End of November remains the key, and if no resolution by then, the market will yet again price in a meltdown in Chinese equities and a  strong probability the PBOC would allow the renminbi to weaken substantially. Knowing this, investors may tap the brakes after last weeks astonishing equity market recovery, and FX traders will continue to position long USDCNY, knowing full well where the significant tail risk lies.

INR and IDR 

As for the regional whipping boys IDR and INR, this a very complicated landscape and surging oil prices will continue to be an outsized problem for both currencies, And despite pledges to fix deficits, there has been no proof in that pudding. Instead, BI and RBI are coming up with creative yet very patchy methods of unorthodox interventions like the mandatory conversion for export proceeds in Indonesia, for example, or taking oil demand off the market in India.

Which brings us full circle, to this weeks FOMC where it’s widely expected both BI and RBI will raise interest rates to match next week Fed hike. So, their ongoing currency struggles will continue to make headlines. However, without addressing the real underlying problems around deficits, hiking interest rates to prop up currency is like putting a band-aid on a broken leg as speculators will continue to target deficit currencies at every opportunity.

Friday Rupee sell-off was directly related to the impact of the RBI raising interest rates which have reportedly caused a massive corporate default for a shadow lender in the housing sector and triggered a significant sell-off in local equity markets.

Ultimately the consumer pays the piper in any rate hike scenario.

Please join me on Live on Monday discussing cross-asset markets 

BFM Radio Kuala Lumpur  7:35 AM SGT  on the Market Watch

938Now 9:00 AM SGT for an extended view  on global markets

France 24 TV at 12:15 SGT for the European Open coverage

Jazz FM London 1:00 PM SGT discussing the Asia markets today

Bring on the FOMC !

FOMC 

The FOMC meeting next week has a hike fully priced in so the focus will be on the dot plots and the follow-up presser which has dollar bulls questioning their near-term positions.

The meeting will be overly scrutinised to see if there are any changes in the projections, with new Vice-chair Clarida voting for the first time. Also, Chair Powell will likely be quizzed on Fed Governor Lael Brainard view that US interest will probably need to be made more restrictive in the sense that at some point in the future if the unemployment rate remains low, policy rates should move above neutral and into the restrictive territory.

Dovish tail risk

And herein lies the dovish tail risk which has  USD Bulls erring on the side of caution. With 2 US rates hikes priced into  the rest of 2018 and in the absence of inflation, it’s almost impossible for the  Feds to bump up the 2019 curve. So, the markets will end up focusing on shifts in the longball forecast into 2020 which is not the best or brightest of signals for currency traders who tend to view markets in much nearer time horizons. Even if the Feds prod 2020 curve higher, its unclear how much of a USD fillip that shift could deliver given that Chair Jay Powell has contiued to de-emphasise 2020 dots. Unless we get an unexpected shift in the Feds terminal policy range of 2.75-3.00%, not sure the dollar ( X -JPY) goes anywhere but trades within well-worn ranges.

What else in G-10?

AS for the rest of G10, there will be no shift from RBNZ, but in the wake of the surprisingly strong data of late especially the monster GDP beat, we could see a subtle less dovish change in guidance.

It’s not a busy calendar next week per say but dotted by US PCE and EUR sentiment surveys. Canada delivers a GDP report, but NAFTA talks will continue to overshadow data as yet another NAFTA month-end deadline looms.

Brexit Blues 

It’s back to the Brexit drawing board after EU leaders “Chequers mated “and utterly humiliated May at the Salzburg meeting which sent the Pound tumbling below the 1.3100 before finding some composure. Of course, most believe a deal in some form or another will eventually happen. But in the nub of all this Brexit bluster, UK data has been surging with both CPI and Retail Sales beating expectations, but indeed  Brexit uncertainty has overshadowed.  Next week’s UK GDP data could be another strong point, however, with little to no breakthrough on Brexit likely to happen any time soon, The Bank of England will remain unwavering until clarity on Brexit it offered up so the market will likely look past next weeks UK data.

Great insights from our Senior Markets Analyst in London, Craig Erlam  

Sterling Down on May Brexit Warnings

OANDA Market Insights podcast (episode 32)

Craig reviews the week’s business and market news with Jazz FM Business Breakfast presenter Jonny Hart.

This week’s big stories: Sterling wobbles on Brexit fears, US/China tariffs tit for tat, Inflation hike against expectations.

China 

China PMI which will be closely monitored. Also, we should expect more trade headlines to come into play as both US and China tease with the idea of resurrecting trade talks.

USD Price Action 

Gauging this weeks price action in the wake of Trump tariff announcement, the markets overwhelming viewed the 10 % on 200 billion tariff levy and the measured responses from China as a smoke signal for further negotiation shortly. So the unwind of global USD hedges ensued as the market just found themselves far too long USD at not such grand levels. But the robust fundamental storyline in the US economy coupled with weak PMI data in Eurozone this week, I don’t think we’ve heard the last from the dollar bulls just yet.

Currencies in focus next week

EUR: a huge disappointment to the bulls with a close below 1.1750. While Fed forward guidance will drive the bus next week, the negative  EU PMI lean could hang like an anvil around the EURO neck.

CNH: It has to be on everyone’s radar especially after this weeks exodus of long USD hedge position on a combination of Trade war de-escalation, comments that mainland will not weaponise the Yuan as a tool in the trade war and offshore funding squeeze on the back Pboc to sell bills in Hong Kong. Despite the correction lower in USDCNH, given that China’s current account surplus is expected to shrink as a result of US tariffs and if the Feds signal clear dot plot sailing or even shift slight higher, CNH could sell off again.

Oil markets

Traders will pay close attention to Sunday headlines from Algiers as OPEC, and cooperating non-OPEC producers will meet on Sunday in Algeria

Likely seeking to appease President Trump, unnamed members of OPEC suggested they would discuss adding 500 K barrels per day, and while it gave cause to book some profit and reduce risk, its highly unlikely anything dealing with supplies will happen before the December 3 OPEC summit.

Despite wire reports suggestions otherwise, most of the oil traders in my circle, and despite the usual OPEC headline noise, think the meeting will be little more than the steering committee review of production and market data.

Please join me on Live on Monday discussing cross-asset markets 

BFM Radio Kuala Lumpur  7:35 AM SGT  on the Market Watch

938Now 9:00 AM SGT for an extended view  on global markets

France 24 TV at 12:15 SGT for the European Open coverage

Jazz FM London 1:00 PM SGT discussing the Asia markets today

 

 

 

 

Canada retail sales climb, inflation falls, CAD rallies

Canadian retail sales climbed in July following a decline in June, led by demand for food and higher gas prices.

Stats Canada said retail sales rose +0.3% in July to a seasonally adjusted C$50.9B.

Note: In June, retail sales fell by a revised -0.1%.

Ex-autos, July sales rose by a robust +0.9%, despite a decline of -2.2% at new car dealerships weighing on the overall results. However, on a price-adjusted basis, sales fell -0.1%. On a year-over-year basis, retail sales in July rose +3.7%.

Canada inflation slows in August

On the inflation front, it decelerated in Canada last month, but remained close to its seven-year high print from July. This headline print very much keeps the Bank of Canada (BoC) in play for another +25 bps hike in October.

Stats Canada said that CPI rose +2.8% y/y in August, following a +3.0% increase in July.

Digging deeper, core-inflation prices rose in a range from +2.0% to +2.2%, based on the three preferred gauges used by the BoC.

CAD initial reaction saw the loonie catch a bid, to deal at C$1.28864 a new weekly high.

ASEAN currencies edge higher

Sept 21 (Reuters) – Asian currencies strengthened for the
third consecutive day on Friday, supported by a weaker dollar
and shifting views over how much damage the Sino-U.S. trade war
will inflict on global demand and export-reliant regional
economies.

The dollar index has fallen more than 1 per cent this
week. Analysts said investment flows are being diverted away
from the greenback to its peers such as emerging market
currencies as trade tensions have ebbed.
“A significant factor in adding to the current run of dollar
weakness is the drop on safe-haven appeal after China suggested
they won’t weaponise yuan in a trade war,” said Stephen Innes,
head of trading for Asia-Pacific at OANDA in Singapore.
“Regional risk is very steady supported by thriving global
equity markets, a slightly weaker dollar and a positive glean
that North Korea’s leader Kim Jung-un has asked for a second
summit with President Trump.”

 

Reuters

US-China trade war, yesterday’s news.?

US-China trade war, yesterday’s news.?

The US stock markets catapulted to a new record high on Thursday as investors continued to sidestep fears over the escalating global trade war and instead focused on a boomy American economy. And at least for today anyway, US-China trade war was yesterday’s news.

Make no mistake the US economy is running on all cylinders, robust growth, soaring employment and rising capital investments. Suggesting the healthy US economy is more than just a short-term knock-on effect from the intravenous elixir of easy credit and fiscal glucose. The US economy is thriving.

Oil Markets

And when you thought the ducks were aligning for a significant push higher in oil prices, enter President Donald with yet another timely twitter castigation of OPEC. Which comes just days before OPEC, Russia and non-OPEC partners meet in Algiers this weekend to review the state of the oil market, with a focus on the likely supply impacts of US-led Iran sanctions. Another case of President Trump having his cake and trying to eat it also, as its those US imposed sanctions on Iran and Venezuela that are causing the spike in oil!!

The market had until that point been trading fluidly with the assumption that Saudi Arabia is now comfortable with Brent at $80 or even higher, which is challenging the markets long-held supposition that prompt Brent between $70 and $80 was OPEC sweet spot.

But with significant support levels holding firm and sentiment is securely buttressed by Iran sanction, politically inspired dips in a bullish market will undoubtedly be bought. The problem, however, is we’re heading into a weekend where what was initially thought to be a meeting of OPEC steering committee to discuss Oil markets current affairs,  has morphed into an unofficial OPEC meeting with 20 + nations at the table, which means traders were going to profit take and reduce risk anyway. I guess President Trump brought forward that decision for traders  20 hours earlier than expected and perhaps the follow through a little thicker than anticipated.

So why the 1.5 % sell-off?

And while Saudi Arabia is revelling in these Iran sanctions, they are also worried that any sanctions-related, oil prices spike  will trigger fresh criticism from Trump, especially ahead of the November election where the blame for high energy prices will squarely fall on the Trump administration ramping up geopolitical risk, for the sake of a hawkish international policy mandate.

Indeed, Saudi Arabia does fear the ” wrath of Trump ” and are taking few chances with the longshot NOPEC bill lingering, but the real question is, even if they wanted to ramp up production, could they??

Gold Markets.
The precious complex is quiet while modestly reacting to the weaker dollar but surging US Bond yields are holding back speculators and not to mention there’s nary a hedger insight with US equity markets rising above all-time high-water marks.

Currency Markets

So where are the dollar bulls ?? more comfortable to short bonds in this market than to go long dollars, so look over at the bond desk!!

Indeed, a tangled web of confusion as USD remains doughy and while US yields didn’t lead overnight, they did hold stable support levels. Of course, the first discussion across our global trading desks was will the USD weakness linger. And the conclusion was a resounding maybe!! While the dollar was widely expected to wobble into the US midterm elections, I think that playbook trade has been brought forward by many factors that we will look at below. But ultimately USD should remain constructive post-midterms for no other reason than as the US economy is doing better than anyone else’s and the Feds will continue to raise interest rates.

The dollar leak

So modern-day forex desks are staffed by a compliment of the brightest kids, grizzled veterans and machine learning algorithms using 3000 data points, and still, no one can predict the course of the USD beyond 24 hours, well 8 hours to be exact in this market. So, forget trying to play long ball (6-month conjectures) and let’s look at some granularity that got us to the point this week where DXY/USGG10YR correlation has temporarily snapped.

EM markets have been catching the tailwind from CBT rate hike, CBR surprise rate hike, BI potential mandatory FX conversion for exporters and the RBI currency countermeasures. All of which contributed to taming the beast (USD) to various degrees. But a significant factor in adding to the current run of dollar weakness is the drop on safe-haven appeal after China suggested they won’t weaponise yuan in a trade war.

Yesterday the RBI stepped up their game as USDINR NDF fell abruptly this afternoon on wire reports suggesting RBI is studying the efficacy of taking oil companies USD demand away from the market. The state-run oil companies were now sourcing their entire dollar demand in markets, and the RBI is now considering opening a swap window to alleviate the pressure, something they have baulked at in the past.
Indeed, desperate times lead to drastic measures.

The Yuan rallied further on news that Mainland authorities are reportedly cutting import tax from most of its trading partners as soon as next month. Of course, the breadth and the actual tax % will be the key. Current estimates are the tax cut will be applied to around 1,500 consumer products. This move triggered more unwinding of trade war hedges as China will get creative to counter the adverse economic effects of US tariffs.

Trump constant attempt to undermine the Feds is also a distraction, as the markets knowing full well the Administration is lobbying for lower interest rates and a weaker USD in this trade war environment. None the less USD has put itself in the centre of discussion regarding what Fed Chair Powell is up to with Congress. Markets are chatty about this article  Bloomberg

And while the Forex markets have become a point for of frustration for some, overnights the price movements appear to be more related to USD haven hedge unwinds as opposed to any long-term structural adjustments the USD as the markets remain well within well-worn ranges.

G-10

The Euro

The EUR was toying with the market all week, and finally, the dollar bears got the bravado to take on the 1.1730 level which predictably triggered a cascading effect to 1.1780. So, with the USD bulls sidelined, short-term speculators seized the moment with the Euro Stoxx reaching a fresh all-time high and Bund yields moving higher pressed the 1.1730-50 zone and made a quick profit on the day.

The Japanese Yen

USDJPY is being carried higher by a higher NKY and higher USD rates

Asia FX
Regional Risk is very steady supported by thriving global equity markets a slightly weaker USD and a positive glean that North Korea’s leader Kim Jung-un has asked for a second summit with President Trump and has reportedly agreed to ‘verifiable’ dismantling of a missile testing site during the North/south summit.

Join me live at 8:30 AM SGT  discussing my views on   MONEY FM 89.3 Singapore   

 

 

U.S safe-haven appeal diminishes

Thursday September 20: Five things the markets are talking about

It’s not been easy, two and two do not add up when trading these Twitter directional asset classes. Fundamentals have been temporary ignored as the ‘lemming’ trades takes a grip.

Fading market fears over a Sino-U.S trade row has the U.S dollar trading within striking distance of its two-month lows. Even emerging-market currency pairs have found some traction after China said it would not retaliate with competitive currency devaluations.

Global equities are beginning to struggle as U.S yields approach their highest level this year.

In Europe, U.K Consumer spending remains buoyant despite Brexit uncertainties. Norway raises interest rates for the first time in seven-years and the Swiss kept rates on hold.

1. Stocks mixed results

In Japan, the Nikkei ended little changed overnight as an extended rally in financial sector was largely offset by profit taking after this weeks rally. The Nikkei inched up +0.01%, just about staying in positive territory for the fifth consecutive session. The broader Topix added +0.11%.

Down-under, Aussie shares slipped overnight, led lower by banks and consumer staples as investors shifted funds to emerging markets as they became less worried about a U.S-China trade war. The S&P/ASX 200 index fell -0.3% at the close of trade. The benchmark gained +0.5% yesterday. In S. Korea, the Kospi index rallied +0.65%, supported again mostly by Samsung.

Stocks in China fell overnight, as investor sentiment remained fragile following the latest hit of tariffs in the Sino-U.S. trade war. At the close, the Shanghai Composite index and the blue-chip CSI300 index were both down -0.1%.

In Hong Kong, there were mixed results as some investors held on to hopes that China and the U.S would eventually reach an agreement to avert an all-out trade war. The Hang Seng Index rose +0.26%, while the Shanghai Composite Index slipped -0.06%.

In Europe, regional bourses have opened broadly higher. Market will focus on the ‘informal’ E.U leaders summit comments.

U.S stocks are set to open little changed (+0.0%).

Indices: Stoxx50 +0.3% at 3,379, FTSE +0.1% at 7,334, DAX +0.2% at 12,248, CAC-40 +0.4% at 5,415, IBEX-35 +0.4% at 9,526, FTSE MIB +0.5% at 21,396, SMI +0.4% at 8,974, S&P 500 Futures flat

2. Oil steady, supported by U.S. stocks and supply concerns

Oil prices trade steady, nevertheless, the market remains a tad better ‘bullish’ after this week’s U.S crude inventory reports and on signs that OPEC may not raise production enough to compensate for the loss of Iranian exports hit by U.S. sanctions.

Brent crude oil is unchanged at +$79.40 a barrel, while U.S light crude oil is +40c higher at +$71.52 after rising nearly +2% in yesterday’s session.

Note: Brent has been trading below $80 for the past week after conflicting reports of the market views of Saudi Arabia, the biggest producer in OPEC. They wanted oil to stay between +$70 and +$80 a barrel for now, seeking a balance between maximizing revenue and keeping a lid on prices until U.S midterms. However, giving the market a bid undertone are reports yesterday indicating that the Saudi’s were happy with prices above +$80 a barrel.

EIA data Wednesday showed that U.S crude oil stockpiles fell for a fifth consecutive week to a three-year low in the week to Sept. 14, while gas stocks also showed a larger than expected draw on unseasonably strong demand. Crude inventories fell by -2.1m barrels, compared with expectations for a decrease of -2.7m.

Note: OPEC and other producers, including Russia, meet on Sunday in Algeria to discuss how to allocate supply increases to offset the loss of Iranian barrels.

Ahead of the U.S open, gold prices have inched higher as the ‘big’ dollar softened amid easing Sino-U.S trade tensions. Nevertheless, expect investors to remain cautious ahead of next week’s Fed meeting. Spot gold is up +0.1% at +$1,204.69, after rising +0.5%yesterday.

3. Norway hikes rates for the first time in seven years, SNB on hold

Earlier this morning, Norway’s central bank hiked its key interest rate for the first time in more than seven-years. Norges Bank increased the rate to +0.75% from +0.5%.

The central bank said another rate increase is likely in the first three months of next year, with a gradual series of moves taking it to +2% by the end of 2021.

“If the key policy rate is kept at the current level for too long, price and wage inflation may accelerate and financial imbalances build up further,” said Governor Olsen. “That would increase the risk of a sharp economic downturn further out.”

Note: Sweden has also indicated that it may raise its key rate before the end of the year, while the ECB plans to end QE in December.

Elsewhere, the Swiss National Bank (SNB) kept its deposit rate at -0.75%, as expected. The accompanying statement painted two different pictures – the negative rate and willingness to intervene in FX markets “remain essential in order to keep the attractiveness of CHF low and thus ease pressure on the currency.” That said, policy makers also painted a brighter economic future and raised its 2018 GDP forecast to between +2.5% and +3%.

4. Dollar downfall

The CHF ($0.9659) is a tad weaker after the Swiss National Bank (SNB) left rates on hold. The fact that the franc remains “highly valued and has appreciated noticeably” has investors wary of the bank’s next moves.

EUR/NOK (€9.6068) initially fell following the Norges rate hike, but has since reversed and is trading down -1% outright after the bank cut its policy rate forecasts.

GBP/USD (£1.3226) has rallied sharply, again testing yesterday’s intraday highs, on Brexit talk and on stronger than expected U.K retail sales (see below).

USD/ZAR is down by -1.5% at $14.4793 – some investors are anticipating a surprised rate hike this morning. Nevertheless, the consensus expects rates to remain unchanged, given that prices remain within the bank’s inflation target range and that the economy has slid into a recession.

5. U.K retail sales slowed in August

Data this morning showed that U.K. retail sales slowed in August but continued to point to buoyant consumer spending in Q3, which suggests that the economy has kept expanding despite uncertainty over Brexit.

According to the ONS, U.K retail sales rose +0.3% on month in August, after a revised +0.9% rise in July.

Digging deeper, consumer spending continues to power the U.K economy as sales increased across most store categories with the exception of food and clothing outlets.

But is it sustainable, given high inflation, low wage growth and rising interest rates? Uncertainty over the U.K’s future continues to deter investment.

Forex heatmap

Where to hide? That’s the next million-dollar question

Tuesday September 18: Five things the markets are talking about

It was coming, the market new it was coming, just when, and how much, were the unknown variables.

President Trump has imposed an additional +10% tariffs on about +$200B worth of imports from China, rising to +25% by the turn of the New Year. Trump has threatened additional duties on about +$267B more if China contemplates hitting back on the latest U.S action, beginning next Monday.

Of course China is going to retaliate, but how, is part of the guessing game – “to protect its legitimate rights and interests and order in international free trade, China is left with no choice but to retaliate simultaneously.”

There are a few tech exceptions – which benefit Apple/Fitbit for now – and the tiered deployment is to help U.S companies find alternative supply chains. However, if the U.S needs to go to phase three, it would consume all remaining U.S imports from China and Apple products and its competitors would not be spared.

The problem for China is that they do not import enough U.S goods to go head-to-head with the U.S leverage strategy. They will want to cause U.S pain and will probably focus even more on the tech sector. Nevertheless, watch the Yuan’s value, it may be one of China’s strongest weapons. It has weakened by about -6.0% in the past three-months, offsetting any -10% tariff rate by a substantial margin.

From an asset price viewpoint, it’s been a rather ‘subdued’ reaction to Trump’s announcement. Buying U.S dollars in response to trade conflicts does not seem to be as appealing anymore. The delay in imposing +25% tariffs may explain the lack of movement, in addition to the fact that the tariffs have been widely anticipated.

1. Stocks mixed results

In Japan, the Nikkei rallied overnight to its highest close in seven-months, led by insurers thanks to rising U.S Treasury yields. However, no surprises, capping gains were electronic suppliers, which underperformed as the market weighs the new U.S China, tariff impact. The index closed out +1.4% higher, while the broader Topix rallied +1.8%.

Down-under, materials and energy stocks pushed Aussie equities lower as the escalating Sino-U.S trade war pressured commodity and oil prices. The S&P/ASX 200 index fell -0.4% at the close. The index rallied +0.3% yesterday. In S. Korea, the Kospi stock index closed +0.26% higher along with some of its regional bourses as Chinese markets largely shrugged off trade tariff threats.

In China, stocks staged a late rebound as the blue-chip index CSI300 rallied +1.9% as some investors bet that authorities will increase their investment in infrastructure to offset the impact of the latest tariff penalties from Trump. In Hong Kong, the Hang Seng index closed out +0.6% higher.

In Europe, regional bourses have shrugged off early weakness following the ‘telegraphed’ U.S tariff announcement after the yesterday’s U.S close. Autos lead the gains, while the materials sector and consumer discretionary are under early pressure.

U.S stocks are set to open in the ‘black’ (+0.2%).

Indices: Stoxx50 +0.5% at 3,363, FTSE +0.1% at 7,318, DAX +0.6% at 12,164, CAC-40 +0.6% at 5,383; IBEX-35 +0.4% at 9,446, FTSE MIB +0.2% at 21,148, SMI -0.3% at 8,908, S&P 500 Futures +0.2%

2. Oil prices fall as U.S-China trade war questions demand, gold lower

Oil markets have eased a tad as the Sino-U.S trade war questions the outlook for crude demand from the world’s two largest economies.

Brent crude futures have dropped -29c, or -0.37% to +$77.76 per barrel, while U.S West Texas Intermediate (WTI) crude is down -15c, or -0.22%, at +$68.76 per barrel.

U.S crude ‘bears’ believe that these tariffs are likely to limit economic activity in both China and the U.S – a hit to growth is a hit to consumption.

Note: Refineries stateside consumed about +17.7m bpd of crude oil last week, while China’s refiners used about +11.8m last month.

Crude ‘bulls’ are currently clinging to the potential supply cuts caused by U.S sanctions on Iran (third-largest producer in OPEC) as reason enough to support short-term oil prices.

Ahead of the U.S open, gold prices are under pressure as the ‘big’ dollar steadies amid concerns of an escalation in Sino-U.S trade tensions. Spot gold is -0.3% lower at +$1,197.51 an ounce, after rising +0.6% in Monday’s session. U.S gold futures are down -0.3% at +$1,202.20 an ounce.

However, if the ‘big’ dollar loses its ‘tariff haven’ appeal, expect the ‘yellow’ metal to find support on pullbacks.

3. Sovereign yields rally

U.S Treasury yields have backed up along the curve on growing expectations that the Fed could raise interest rates a few more times this year after recent data showed wages spiking last month, elevating concerns about inflation.

Note: U.S data last week showed that wages in August posted their largest annual increase in more than nine-years, rising +0.4% m/m and +2.9% y/y.

Yesterday, U.S 10’s touched +3.022%, the highest level in four-months, along with U.S 30-year yields at +3.159%. As to be expected, the short end rallied to a 10-year high, backing up to +2.799%.

Elsewhere, German Bund yields continue drifting upward to the +0.50% level amid better sentiment around Italy. The 10-year Bund yield is trading at +0.46%, up +0.05%. In the U.K, the 10-year Gilt yield has rallied +1 bps to +1.536%.

4. Dollar muted reaction

EUR/USD (€1.1680) shows a muted reaction to the U.S announcement that it will charge +10% on another +$200B of Chinese imports starting from next Monday. Typically trade tensions have been positive for the ‘big’ dollar; maybe attitudes will change once China shows its hand.

GBP/USD (£1.3126) pulls back from recent six-week highs as the market awaits Thursday’s E.U summit.

TRY ($6.3670) continues to weaken, down another -0.7% as investors remain confident in fading last weeks bigger than expected Central Bank of the Republic of Turkey (CBRT) rate hike.

An interest rate increase by the Norges Bank on Thursday is widely expected and already broadly priced into EUR/NOK (€9.5406). However, NOK bulls believe the central bank will likely signal more rate increases, which should provide further support for this commodity currency.

5. Reserve Bank of Australia (RBA) stays true to its ‘hawkish’ stance

In its minutes released overnight there were no surprises. The RBA maintained its interest-rate guidance in the minutes from its meeting a fortnight ago, reiterating that increases will eventually come amid anticipated economic strength.

RBA also noted that a number of G10 central banks, including the Fed, were expected to continuing rate hikes. This had been reflected in the markets, “most notably a broad-based appreciation of the US dollar” that “raised risks” for some, especially for “fragile emerging” markets. However, “the modest depreciation of the AUD was helpful for domestic economic growth.”

The copy and recent rhetoric suggests that Aussie policy makers remains highly confident its current stance – interest rates at record lows will ultimately bring lower unemployment, higher wage growth and an uptick in inflation over time.

Forex heatmap

Asia closing market notes : riding the risk rollercoaster

The markets are riding the risk roller coaster as headline overload has been dominating the Asian session.

First, the USTR tariff announcement had a bit more sting than expected due to the graduated settings 10 per cent now then up to 25 per cent in January on 200 bln. Which suggests the US is looking to talk but also not the President is not willing to cede the upper hand.

Then it was a matter of confusion reigns as CHINA SAYS COOPERATION IS ONLY RIGHT CHOICE FOR CHINA, followed by CHINA LIKELY WILL NOT SEND TRADE DELEGATION TO WASHINGTON, which tugged risk every which way but loose and left trader chasing their tail most of the session.

Frankly, I’m still surprised by the level of complacency, but then again, this escalation was so telegraphed suggesting today’s playbook could not have been scripted any better. But I’m keenly focused in USDCNH and China equities as the market’s composure surely belies the groundswell that’s yet to come.

Oil markets are in a tug of war as Iran sanctions will continue to provide near-term support, while discussions around global demand in the wake of this morning tariffs and speculation of further OPEC supply increases should temper upside ambitions. But in the absence of any OPEC supply shift, Iran and Venezuela shortfall should ultimately push prices higher, at least for the near term.

Gold continues to trade in tandem with the USD but, but with traders still debating the next USD direction we could remain in $1190- $1210 range.

ON the currency front, The Euro is showing a spring step but failed again at 1.1720. The August high 1.1730 remains critical while significant support should come in around 1.1620. Frankly, the EURUSD is where the near-term US dollar (X JPY) battle lines are forming.

Draghi has shifted less dovish, and fear index around Italian risk is easing., but we still have that unmistakably hawkish Fed here former dove like Lael Brainard continues to sound unmistakably hawkish every time she takes the podium.