Breaking news on US’s release of US$200 billion tariff list of China imports smashed tranquility this morning, adding on trade concerns that had been looming market sentiment over the past few months.

The new list will target manufacturing products from apparels to electricals and high-tech products excluding smart phones. This could further weigh on the S&P 500 index after a four-day rally, totaling 2.8%. Volatility index July contract jumped 3.4% this morning to 14.3 area, a reflection that fear has returned to this market.

Asian markets are poised to open broadly lower, halting a technical rebound that was supported by earnings optimism. Now investors need to strike a right balance between ‘trade war’ risk and a likely solid earning season. Speculators might take this opportunity to take profit after two-day rally in risk assets. 

US Dollar Index surged to the 93.9 area while Japanese yen held the ground this morning as money flew into safe assets. Gold and silver, however, seemed have lost their safe-haven character these days. Gold price has entered a bearish trend since mid April and this trend has shown no sign of reversing yet. Its SuperTrend and 10-Day SMA both sloped downwards, while momentum indicator MACD also trended lowerin the negative territory. An immediate support level could be found at US$1,238 area (76.4% Fibonacci Retracement).

In Hong Kong and Singapore markets, profit-taking activities might dominate today as investors start to offload their chips in view of rising trade tensions between Washington and Beijing. How Chinese policymakers are going to respond to the fresh US$200 billion tariff is going to be a key for future market movement.

In April this year, China only imported US$133 billion of US merchandise exports over a 12-month period. That means China does not have sufficient imports from the US to carry out ‘dollar-to-dollar’ countermeasures this time, comparing to what they did to the US$50 billion tariff last month.

Volatility Index –July 2018

By Margaret Yang in Singapore


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