Asia Pacific markets are facing a good news / bad news trading session. The re-start of trade negotiations between China and the US lifted global share markets, and pushed the US S&P500 to a new record high. However futures fell in US post-market trading on reports of White House consideration of new tariffs on European goods. Unrest in Hong Kong and surging crude oil prices also undermine yesterday’s positive moves.

The amount of proposed new US tariffs on Europe is $4 billion. This is inconsequential in global trade terms. The problem is the widening of the dispute. Europe, the US and China account for almost two thirds of global GDP. An ongoing disruption to trade between these three major economies, prosecuted for domestic political purposes, could sink global growth.

Currency markets are leading with a calm response so far. Investor fatigue with the attention grabbing moves may see muted reactions. While leaders play tough guy, the political fall-out from any economic rout points to ongoing brinksmanship, potentially tied to the US political cycle and the presidential elections due in November 2020. Bonds and the Japanese yen are higher this morning, but gold traders have failed to follow the safe haven lead.

Diminishing options for central banks are in the spotlight as the Reserve Bank of Australia meets today. Interest rate traders are now pricing an 88% chance of a 0.25% reduction in cash rates to 1.25% today, weakening the Australian dollar overnight.  If the RBA steps away from this script the Aussie will likely lift. The Australian 200 index may come under pressure, despite record iron-ore prices and an OPEC inspired lift in energy markets.