The trading relationship between the US and China has taken a bit of a negative turn. 

President Trump said he would impose ‘even higher’ tariffs on imports from China if a deal isn’t brokered. The announcement reopened up old trade worries, which triggered traders to cut their equity positions.

The US-China trade spat has been rumbling on for over one year, and traders are used to the back and forth. Recently we have seen some European equity markets at multi-year highs, and a number of US indices hit record highs, so Trump’s remarks acted as an excuse to unwind some positions.

The US government applied pressure to China with regards the unrest in Hong Kong. The US Senate backed a bill to protect the rights of the people in Hong Kong. The level of violence in the region is on the rise and the move by Washington DC could be viewed as cynical ploy to get Beijing to get their house in check before an agreement can be put in place. On the other hand, some US companies have exposure to the financial hub so it’s in the US’s interest to see a return to normality in the area.

The Hong Kong angle has added weight to the argument that the US and China might not sign phase one of the trade agreement by the end of 2019. Significant progress has been made in recent weeks, but it is worth remembering the discussions were ‘about 90%’ complete in May, according to Steve Mnuchin.   

Overnight, equity markets in Asia traded lower over worries about the trading relationship. It was reported that China’s top negotiator, Liu He, is ‘cautiously optimistic’ about signing phase one of the deal with the US.        

The minutes from last months Fed meeting was released yesterday. The report covered the finer details of the meeting in which interest rates were cut three times in four months. ‘Most’ policymakers saw the move as enough to support the bank’s objectives in relation to growth, jobs as well as inflation’. There is a feeling the Fed will sit on their hands in the near-term, and wait for the rate cuts to take effect.       

Oil rallied yesterday as a number of factors spurred buying. Tensions in the Middle East rose on reports that a warplane belonging to the Saudi-led coalition was downed by Houthi movement. Traders are sensitive to the political mood in the region, and even more so in light of attacks on the Saudi oil facilities two months ago. Russia signalled its desire to keep its production cuts in place.        

At 9.30am (UK time) the latest public sector net borrowing figures will be posted, and economists are expecting the deficit to dip to £8.6 billion, from £8.73 billion.

The US jobless claims report is tipped to fall to 219,000 from 225,000. The Philly Fed business index is expected to come in at 7 from 5.6. The reports will be published at 1.30pm (UK time).

At 3pm (UK time) the US existing home sales numbers will be posted, and the consensus estimate is 5.47 million. Keep in mind, earlier in the week the US building permits reading was the highest in 12 years.  

EUR/USD – has been broadly moving higher for over one month and while it holds above the 50-day moving average at 1.1041, it might seek to retest 1.1100 area. A drop back below 1.1041 could mean the currency is going to fall back into the wider negative trend, which could see the market target 1.0879. 

GBP/USD – remains in the recent upward trend and a sizeable break above the 1.3000 area might bring 1.3178 into play. A move lower might put the 200-day moving average at 1.2702 on the radar.           

EUR/GBP – is still in the bearish trend so 0.8471 might be targeted. A break above 0.8760 might bring the 50-day moving average at 0.8750 into play.   

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.