Asian stock markets are set for another poor start to the day as trade tensions between Washington and Beijing appeared to escalate overnight. US Secretary of State Mike Pompeo met with Chinese officials in Beijing and the result produced some less than encouraging comments for the market with Chinese Foreign Minister Wang Yi talking of a breakdown of trust between the two countries and Pompeo advising of ‘fundamental disagreements’. The UsdCny powered higher and now sits around 6.9300 as we move into the Asian session proper. The greenback itself was mixed on the whole as holidays across the globe led to slightly more subdued trading conditions.
The US-China trade situation has dominated market wires over the course of the trading year and on the face of it the Chinese side has appeared to remain calm against a more aggressive US administration, however it does appear that Beijing is starting to lose patience now and this is not good for overall global growth. We’ve seen trade sentiment dominate market flows and if we see an escalation from this level then expect to see further downside for stocks and other risk products. Currency traders will be watching the Cny closely over the next few days and any further depreciation could see contagion over to other EM’s as well as the Aussie which has acted as a strong risk proxy recently, it’s once again sitting at vulnerable levels and another push could see if comfortably south of 70 cents in the next few trading sessions.
Looking ahead to todays trading and investors will remain focussed on overall market sentiment as we have very little on the board in terms of economic data releases. Business confidence numbers are due in Australia we hear from MPC and BOC speakers later in the day but expect the market to remain fixed on the sentiment trade.