Trade escalation returns

Just as we were about to conclude the week with the biggest event of the week, the Fed FOMC meeting, having passed, it appears that US-China trade tensions returned to take over the spotlight.

Risk-off markets on fresh tariffs threat

The abrupt arrival of President Donald Trump’s latest tariffs threat just off the heels of the first face-to-face US-China meeting post the June G20 trade truce had been the latest alarming development for markets. For fear of sounding like a broken record, the US-China trade issue evidently remains a key concern for markets. Just as we have cheered the improvement in situation from the May tariffs exchanges, President Donald Trump’s return to brandishing a 10% tariffs on $300 billion of Chinese imports threat reflects the lack of progress. This lends little weight to the talks that had been concluded to be ‘frank, efficient and constructive’. It also potentially marks another prolonged period of heightened risk sentiment for markets that could trip the recent rally over, one to watch.

Following the greenback rally on the back of July’s Federal Open Market Committee (FOMC) meeting, USD/JPY as the risk barometer had certainly registered the sharp turn in market sentiment, falling past $107.50 into Friday. Look to a clear break of the $107.00 level that could invite further selling for the pair.

Source: IG Charts

Sharp declines for Asia markets

Likewise, for Asia markets, the US-China trade issue lies at the heart of market concerns. The sudden turn in development for the negative may have a lingering impact for Asia markets. While past iterations of tariffs commencement had been rather fluid from President Donald Trump, the latest September 1 start date may be a limitation for positive developments with the next US-China meeting set only then. This latest souring of relations could continue to weigh on Asia markets in the short-term, thereby giving us a downward bias for the region, one to watch.

All eyes will be on the non-farm payrolls for Friday, but prior to which, any form of retaliation from China could further invoke concerns and market reactions. The local Straits Times Index, with the break of the 3300 level yesterday, will continue forming the short-term downtrend. Positive earnings performance from OCBC and UOB may help to offset some of the gloom, but amid the latest US-China trade tension escalation, it is downwards where we will be headed into the end of the week.

Source: IG Charts

Yesterday: S&P 500 -0.90%; DJIA -1.05%; DAX +0.53%; FTSE -0.03%

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