In an extraordinary display of bravado European and US stock markets rose despite an impending salvo in the trade war between the US and China. Base metals traders appeared less optimistic, and copper and aluminium extended recent losses. Forex traders appeared confused, as the US dollar rose against the Japanese yen but fell against the Euro. Markets may heat up as midnight (New York time) approaches.

Traders will likely focus on Beijing as the early afternoon deadline nears. Authorities in China have promised a swift retaliation, and any announcement could prompt a severe market reaction. The Shanghai composite is down 12.5% since May 21. The S&P 500 is flat over the same period, and the Nasdaq 100 is up almost 3%. These wildly divergent performances suggest a major adjustment is coming – a key question for traders is whether it will be investors in China or the US closing the gap.

Data from Europa and the US overnight was flat to positive. The German retail PMI and US non-manufacturing PMI were notable bright spots. The numbers continue to drop with Japanese wages data and leading indices, German industrial production and UK house prices ahead of US non-farm payrolls tonight. However a sharp escalation in the trade conflict, or seemingly less likely resolution, may dominate market action