Just when the US administration had seemed to calm the fear and uncertainty in global markets, the President comes out with yet another aggressive move in the ‘Trade War’ with China. He has ordered his administration to consider adding a further $100 Bio of tariffs against Chinese imports. With the equity markets looking to open strongly in Asia after strong sessions in Europe and the US this has once again changed short term sentiment with the Nikkei and S&P futures down over 1% so far, Gold jumping and the UsdJpy and Jpy crosses once more coming under pressure.
Market focus was set to move over to more fundamental data today with the US Non-Farm Payroll data coming out in the New York session but now we are probably set for a bit more volatility in risk sentiment as the market now waits to see if we get a response from the Chinese. If we follow the previous pattern that’s been set over the last few weeks, we will see a strong response from China with a caveat that they are still prepared to negotiate and then we will once again see a softening of rhetoric from the US side. With this in mind and with the NFP’s coming up the market reaction and volatility will probably not be as severe as we’ve seen in the previous weeks.
So once again as we look at the main catalysts for moves in the day ahead the Trade talk will probably dominate short term moves, however as we approach the London and New York sessions, expect calmer markets ahead of the Non-Farm release. As with the last few US employment data releases, the market focus will be as much on the Earning’s numbers as on the Headline figure, but certainly the feel from the market is still on the bullish side of things and therefore the risk still remains with a downside surprise.