Last night Robert Lighthizer, chief US trade negotiator, explained the reasoning behind the imposition of higher tariffs on Chinese goods from this Friday. US shares opened down 2%, but recovered over the session as the US dollar fell and bond yields rallied. The mild reaction saw futures traders push Asia Pacific indices into positive territory overnight after yesterday’s rout. Australian investors are looking to the RBA to cut rates at its monthly meeting today.

Metals and energy traders appear to doubt the putative tariff increase will harm global growth. Whether they are banking on a bluff from Washington or a climb down from Beijing is unclear, but the overnight rallies look complacent compared to yesterday’s 5%+ decline in China equity indices. The Australian and New Zealand dollars remain under pressure despite the commodity strength. European investors showed higher concerns; stocks suffered as bonds benefited.

Interest rate markets are pricing a 50% probability of an interest rate cut from the RBA today. Weaker GDP growth and a cratering in Q1 inflation in Australia raised expectations, and the current global concerns fuelled further dovishness. The weakness in the Australian dollar may suddenly reverse of investor hopes are dashed at 2.30 pm AEDT today.