Global financial markets had experienced a strong end to last weeks trading as better than expected US job numbers had bolstered stocks and other risk assets, however comments from President Trump overnight that tariffs will increase this week on $200 bio worth of Chinese imports have hit hard this morning. Risk currency pairs gapped lower on the Sydney open with Jpy crosses and risk pairs taking significant hits as well as the Yuan, we’ve seen a bit of a recovery since the initial move but traders are braced for further volatility. Futures markets are lower across the board with S&P contracts down over 1.6% at one point and Gold has rallied in early trade.
We’ve seen a strong reaction to the overnight comments from President Trump in the markets, but investors will now be looking for more clarity on the situation as the week progresses. The news of tariff increases has come as a bit of a shock as most comments recently from both US and Chinese teams had been positive with much talk of progress being made and investors will be hoping that this step by the President is more of a negotiating tactic than a statement of intent. A large Chinese team is set to visit Washington this week and hopes were high for an agreement to be made, investors will be monitoring developments very closely now and any signs that a deal will be pushed further down the track or not progress at all could send markets into a tailspin. Traders are preparing for an interesting day in Asia today as Chinese markets open for the first time since last Tuesday and Japan remains closed until tomorrow, given the increased uncertainty across the market and lower liquidity conditions there could be some very whippy moves ahead.
Looking ahead at todays trading day and sentiment drivers look set to dominate market moves in light of the weekends developments, any strong response from Chinese officials could put further pressure on markets as we progress through the day. In terms of economic data releases, the Caixin Services PMI will be the main focus for the Asian session. It’s relatively quiet through the other sessions today with the UK enjoying a holiday for May Day and no other tier 1 data releases on the calendar.