TALKING POINTS – US TARIFFS, CHINA, TRUMP, TRADE WAR, YEN, US DOLLAR
- Yen, US Dollar soar as Trump threatens tariff hike on China imports
- Australian and New Zealand Dollars drop with Asia Pacific equities
- US and European stock index futures hint risk-off trade to continue
The anti-risk Japanese Yen outperformed in Asia Pacific trade as signs of escalation in the US-China trade war sent markets scrambling. The similarly-minded US Dollar and Swiss Franc followed higher while the sentiment-linked Australian, Canadian and New Zealand Dollars sank alongside regional stocks.
Signs of progress in trade talks between Washington and Beijing had seemingly lost its capacity to brighten investors’ mood over recent weeks, implying the markets were all-but priced for a deal. APAC bourses shed over 2 percent on average as the story took a hard pivot in the opposite direction.
US President Donald Trump aired frustration with the slow pace of progress via Twitter over the weekend, saying tariffs on $200 billion in Chinese imports will rise from 10 to 25 percent by Friday. He added that levies on a further $325 billion in goods from the East Asian giant may be pursued.
YEN, US DOLLAR POISED TO EXTEND GAINS IN RISK-OFF TRADE
Looking ahead, a lackluster European economic docket seems unlikely to take the spotlight away from broader sentiment trends. Revised Eurozone PMI data confirming private sector growth slowed in April is likely to dissolve into broader risk aversion without a stand-alone market response.
Futures tracking key European and US equity benchmarks are pointing sharply lower before the opening bell, hinting that the risk-off drive will probably continue. Absent a walk-back from the White House or some equally drastic about-face in the narrative, breaking this momentum is likely to prove difficult.
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CHART OF THE DAY – S&P 500 DOUBLE TOP READY TO BE CONFIRMED?
The bellwether S&P 500 stock index looks to be on the verge of confirming a double top after recoiling from critical resistance, as expected. This is marked by the 2018 swing top, the upper bound of a bearish Rising Wedge chart pattern, and the underside of support-turned-resistance established from February 2016.
Prices are now trading below the Wedge floor. If this break is confirmed on a daily closing basis, a Double Top will appear to be completed. That may set the stage for prolonged de-risking across financial markets, driving USD and JPY higher at the expense of sentiment-geared commodity bloc currencies.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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