Asian markets are posited to open lower alongside a 1.7% drop in the S&P futures and 2% drop in crude oil prices, following President Trump’s tweet about raising tariffs on Chinese imports.
Meanwhile, the Wall Street Journal reported China is considering cancelling trade talks with the US this week, creating further doubt over the outlook of US-China trade negotiations. The trade talk has long been questioned by many observers as there seem to be a lack of detail and concrete progression, despite officials from both sides trying to mask the tough negotiations with positive comments.
It is completely possible that President Trump is trying to press China for concessions and a speed up in talks with tariff threats, and the tariff hike can be contained if China softens its stand. However, the outlook is so complicated and unpredictable that market participants might choose to stay on the side-lines and wait for the dust to settle.
In a worst case scenario, a re-igniting trade war will weigh on China’s economic recovery, in particular their electronics exports. This will likely force the policy maker to carry out more stimulus to boost domestic consumption in order to offset the impact of a deteriorating trade environment. If the Trump administration is going to raise tariffs on US$ 200 billion Chinese goods from the current 10% to 25% this Friday, and impose 25% tariffs on the remaining US$ 325 billion goods as Mr Trump said on twitter, the economic impact to China’s manufacturers will be enormous and investors’ confidence will be badly hurt.
As volatility spikes up following a long period of tranquillity, a ‘risk off’ sentiment could soon dominate markets as investors dump equities and rush into safe-havens.
USD/JPY traded 0.6% lower to 110.43 this morning, and the Japanese yen is the best performing currency among G10 today followed by the Swiss Franc and the US dollar. The other currencies are trailing behind these three.
Gold prices climbed for a second day to US$ 1,284 area, challenging a key resistance level at US$ 1,288 (61.8% Fibonacci Extension). Brent Oil prices tumbled 2% to US$ 69.63 area, continuing its downtrend since the SuperTrend (10,2) flipped bearish at the end of April. Immediate support level can be found at US$ 68.0.
Asian equities are likely to get a blow this morning, with the Hang Seng Index, Shanghai Composite and the Straits Times Index most susceptible to the negative news overnight. Singapore’s offshore & marine, electronics and financial sectors might be under pressure.
US SPX 500 – Cash (5 mins)
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.