The markets have survived that latest salvo’s in the trade war between the US and China surprisingly well as the reality of this next stage was deemed to be less impactful that what was originally feared. The global stock indices all had strong days yesterday after President Trump confirmed the extra $200 bio of tariffs on Chinese imports and China confirmed that they will retaliate with $60 bio on US goods. The dollar had a mixed day, noticeably gaining against the Yen and Euro, but falling against the Aussie, Kiwi and Cad as commodities gained back some ground, and as US yields continued to push higher with the 10 year back through 3%.
Going into yesterday’s trading sessions the market was on high alert that there could be a serious escalation in the trade war between the US and China and at the end of the day, even though some of those fears were met it certainly wasn’t to the extent that had been touted by some. The main rays of hope for global growth being the drop to 10% (and not the full 25% straight away) by the US and the ‘relatively’ small $60 bio retaliation by the Chinese. In general, there feels that this has been a bit of a reprieve and certainly not the end of hostilities and investors are still wary of what comes next. China has the capability to step up their efforts using the level of their currency and direct action against US firms and President Trump has already indicated that he is prepared to push to all out tariffs on Chinese goods, any escalation along these lines will have a strong downside impact on the markets.
Looking ahead to todays trading sessions and Asian stock markets seem set for another good day, the trade situation aside, the main focus for the market will be the latest Bank Of Japan meeting’s conclusion with the associated rate announcement, policy statement and press conference. We’re not expecting much from Governor Kuroda and expect the Bank to keep monetary stimulus in place, however, we may see some movement if there is more than a passing comment made with regard to the global trade situation.
Into the London session and the UK market will come into focus with the latest CPI data due out, sterling has enjoyed a good run in the last couple of weeks as Brexit news has turned positive and bulls will be hoping a strong number will keep that trend intact. ECB President Draghi is due to speak later in the day before we have the latest Crude Oil inventory numbers from the US.
Overall the market is in a similar place to where it was 24 hours ago with just a bit more clarity on the trade situation. Sentiment is likely to remain dominant as we progress thorough the week with fundamentals still remaining on the subs bench, however, focus will start to move towards next week when we have the FOMC meeting and the next expected rate hike.