An escalation of trade hostilities roiled markets in overnight trading. Yesterday China devalued the Yuan to eleven-year lows and instructed state organisations to halt purchases of US agricultural goods. The White House responded by labelling the move “currency manipulation”. Shares dropped, bond prices hit fresh highs and gold continued its ascent as investors raced for the exits.

In scenes reminiscent of the 2018 fourth quarter sell-off the S&P 500 index dropped 3%, extending the four day drop to 6.5%. Energy markets slumped as growth fears haunted traders, and analysts openly used the r-word. The Japanese Yen rose as investors sought havens, and the US dollar index recorded its fourth daily decline in a row. Interest rate markets are now pricing between three and four 0.25% interest cuts form the Federal Reserve by mid-2020.

The support of central banks and the economic insanity of the trade dispute may mean a global recession is less likely. However markets are in a take no prisoners mood, and Asia Pacific markets are set for a torrid session. Sharp reversals are possible, and one of the few higher probability calls is that volatility will remain elevated over the coming days and weeks.

The Reserve Bank of Australia meets today. The consensus forecast is for no change to the cash rate after cuts in the last two months, but the accompanying statement will receive additional scrutiny given the events of the last twenty-four hours.

Australian top 200 companies reporting this morning offer some cold comfort to local investors against this distressing backdrop. Both Pinnacle Investments (PNI) and Bunnings Warehouse Trust (BWP) beat Bloomberg average full-year earnings estimates. A miss from Shopping Centres Australia appears to confirm ongoing weak consumer activity, and may better match the current market pulse.