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Global markets experience a touch of China syndrome

Global stock markets have taken a caning in the past 24 hours, experiencing their own mini China syndrome moment, with the US Fang+ index undergoing its worst day this year after China announced a raft of new tariffs on over 2,400 of US goods.

With the EU also threatening its own retaliation if President Trump implements tariffs on EU autos at the end of this week, stocks have seen valuations put into the shredder, with large falls across the board, as in the space of five days we’ve seen all the April gains for US markets disappear. 

The selloff was spread pretty much across the board with few being spared, Apple had its worst day since 2013, the entire Nasdaq 100 finished in the red, while all the recent tech unicorns saw their valuations torched, Pinterest and Zoom Video, seeing heavy falls, while ride sharing app companies Lyft and Uber Technologies fell further below their IPO valuations.

Boeing also fell sharply on reports that China might reduce its orders for its aircraft, while Asia markets picked up where the US left off also falling sharply, as any remaining optimism of an imminent deal on trade disappeared in the short term.

Despite the heavy falls in Asia we have seen a pullback from the lows, after President Trump kept open the prospect of some form of deal in the next “three to four weeks”, when speaking at a White House event, as well as saying that he was prepared to meet President Xi. This pullback from the lows is likely to see European markets open slightly higher this morning, but it is unlikely to change the prospect of further volatility in the days ahead.

What we also saw, which suggests that investors are getting more worried, and taking steps to move into safe havens, was a strong move higher in gold prices, as the yellow metal saw its best one day move in three months, moving to the $1,300 level and a one month high, while US treasury yields dropped sharply as investors moved into US treasuries.

Cryptocurrencies also saw big one day moves to the upside, largely as a result of some technical breakouts, but nonetheless bitcoin still managed to put in one of its best moves this year, closing at a nine month high in the process.

The resilience of UK economic data appears almost incidental in helping support the pound which has continued to come under pressure ahead of next week’s European elections.

The slow erosion of support from the Conservative Party, as well as the Labour Party towards the Brexit Party doesn’t augur well for a stable political outcome with respect to the ongoing Brexit talks, which appear to be stuck in the mud, going nowhere fast.

UK politics appears to be undergoing a metamorphosis in front of our eyes, with the eventual outcome likely to take several years to pan out. The effects of this evolution, which appears to cut across traditional party lines looks set to reshape British politics into something unrecognisable to what we’ve become used to over the last forty years.

This may well explain why, despite economic data that to all intents and purposes, continues to remain resilient, the pound has struggled to rally over the past few sessions. Today’s wages and unemployment data for March are unlikely to change this narrative, even if they beat expectations.

Unemployment is expected to remain at its lowest levels since the mid 1970’s at 3.9% for the three months to March. Wages growth is also expected to remain strong, coming in at 3.3%, slightly down from 3.4% in February. This is still well above the headline CPI inflation rate of 1.9%, meaning that once again consumers are seeing real wages growth, for the eighth month in succession.     

EURUSD – the 50-day MA as well as the 1.1270 area appears to be containing the upside for now, with wider resistance at the 1.1325/40 area and the April peaks. The bias remains to the downside, and the lows at 1.1110, while below this key resistance level.

GBPUSD – the pound has continued to come under pressure slipping down through the 1.2960/70 area, raising the prospect that we could well see further declines towards the 1.2800 area. We need a move above 1.3070 to stabilise.

EURGBP – the recent range highs at 0.8680 remain a key resistance area, with a break targeting 0.8720. While below the risk is for a drift back down towards the 0.8570 area on a break below 0.8620.

USDJPY – fell back to the 109.00 area yesterday with the risk still geared for further declines towards the 108.00 area. It would need a recovery back above the 110.30 area to stabilise and signal a move back towards 111.00.

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