US DOLLAR, YEN, STOCKS, TRUMP, TRADE WAR – Talking Points:
- US Dollar, Yen rise as APAC stocks follow Wall Street lower
- Markets might be shifting focus to global recession impact
- Comments from Trump town hall revive trade war worries
Financial markets started the trading week in a downbeat mood. Futures tracking the bellwether S&P 500 stock index gapped lower, with sentiment-linked assets including the Australian and New Zealand Dollars down in tandem. The anti-risk US Dollar and Japanese Yen tracked higher.
The move seems to echo Friday’s dour tone on Wall Street, where shares faced the heaviest selling pressure in a month. It is difficult to ignore that the about-face in sentiment occurred at the April-to-May handoff. I am typically dubious of seasonal “patterns”, but a kind of monthly reset is perhaps not so outlandish.
Much of April was spent focusing on the imminent threat of a credit crunch and the Fed’s heroic efforts to prevent one. They seemed to have succeeded for now, driving the TED spread measure of funding stress lower and punishing the Greenback while lifting investors’ spirits in the process.
It is conceivable that the calendar turn to May might have flipped a kind of mental switch for investors, shifting the focus from near-term credit risk to the near-certainty of global recession and its long-term consequences. The recent spate of gloomy economic data and corporate earnings guidance supports this narrative.
Chart created with TradingView
Soundbites from a virtual Fox News town hall with US President Trump may be boosting risk aversion. He said that a ‘strong’ report from US intelligence on the origins of Covid-19 is due Monday, adding that “tariffs would be the ‘ultimate punishment’ for China”. That may be reviving trade war worries.
Looking ahead, a relatively quiet day for scheduled event risk seems likely to keep sentiment trends at the forefront. Asia Pacific stock benchmarks like the Australia’s ASX 200 and Japan’s Nikkei 225 already face heavy selling and futures tracking their European and US counterparts signal more of the same ahead.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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