A ramping of trade rhetoric appeared to have little impact on investor sentiment in overnight trading. Despite an escalation beyond tariffs, and strong words from China, shares rallied, and bond prices and the Japanese yen fell. However not all growth correlated markets responded, with commodity currencies easing lower along with copper and crude oil.

The British pound remains under pressure as prime Minister May tabled a modified approach in an attempt to break the Brexit deadlock. The compromises include a possible second vote and a customs unit, drawing disdain from the Labour opposition and fury from the Democratic Unionist party and some of her own party’s members. The downtrend in GBP/USD is pointing to further difficulties. The slide comes ahead of important UK inflation data tonight.

Markets are still vulnerable to headline and tweet risk. The growth exposed Australian dollar and the safe haven Japanese yen provide a barometer for market sentiment. AUD/JPY swings with any developments in the US/China trade dispute. Attempts by both the US and China to embroil the European Union in the Huawei discussion threaten to widen the impact of the ongoing disagreement.

Futures markets are pointing to small opening gains for Asia Pacific shares. This is particular important to the Australia 200 index, which is trading in “blue sky” territory at fresh eleven year highs. Unusually, volatility has increased with the recent index gains, and may remain elevated as investors contrast recent positive domestic developments with a deteriorating international outlook.

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