YEN, AUD, US-CHINA TRADE WAR, TARIFFS, FED – TALKING POINTS:
- Yen aims to extend APAC-session gains amid US-China trade war escalation
- Fed-speak reinforcing policy standstill might undermine risk appetitefurther
- S&P 500 chart positioning warns of major sentiment collapse on the horizon
The anti-risk Japanese Yen outperformed while the sentiment-linked Australian, Canadian and New Zealand Dollars fell alongside Asia Pacific stock exchanges at the start of the trading week. That seemed to reflect broad-based pessimism at the sight of US-China trade war escalation.
Washington opted to make good on a threat to increase tariffs on $200 billion in Chinese imports from 10 to 25 percent. US President Trump also issued an ultimatum, saying duties on a further $325 billion in Chinese goods will go up to the same level if a deal is not struck within a month.
News-flow coming out of official channels in the People’s Republic over the weekend showed officials there bristling at Mr Trump’s combative posture. The US was said to bear “full responsibility” for the breakdown in negotiations. Beijing – it was said – has been “pushed to the limits” of what it is willing to concede.
FED COMMENTS MAY COMPOUND US-CHINA TRADE WAR JITTERS
Looking ahead, a quiet offering on the economic data docket is likely to keep sentiment trends at the forefront. Bellwether S&P 500 futures are trading down over 1 percent ahead of the opening bell in Wall Street, signaling the risk-off push in APAC trade has scope for follow-through.
Fed-speak may amplify the downbeat mood. Comments Boston and Dallas Fed presidents Eric Rosengren and Robert Kaplan as well as Vice Chair Richard Clarida are due. De-risking may accelerate if they reinforce recent rhetoric suggesting that the US central bank is in no hurry boost monetary stimulus.
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CHART OF THE DAY – S&P 500 WARNS OF MAJOR SENTIMENT COLLAPSE AHEAD
A double top in S&P 500 futures initially flagged in mid-April played out as expected, with confirmation registered last week by way of a break below support the floor of a bearish Rising Wedge chart formation. Prices have now gapped below support in the 2865-79 zone, warning of deeper losses.
If the breakdown is sustained on a daily closing basis – meaning prices are unable to close back above 2879 – the focus will turn to the next downside barrier in the 2807.50-24.25 zone. The chart inflection point at 2747 comes into view thereafter.
The S&P 500 represents the trend in the expected earnings of the world’s largest multinational corporations. In that it is a timely barometer of the markets’ view on overall global economic prospects. A bearish reversal thus bodes ill for sentiment trends, telegraphing prolonged liquidation on the horizon.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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