Global equities took a hard hit during yesterdays trading as investors remain cautious on the future of a trade deal between the US and China. On a positive note, China did confirm that Vie Premier Liu will be attending talks, however they also advised that retaliatory tariffs on US goods will be imposed if President Trump goes ahead and raises levels on Friday. Asian stock markets had experienced a reasonable day but the story changed as the day progresses and European and US bourses finished well in the red with the US markets having one of it’s worst days since December. The Nasdaq finished the day negative 1.96% with the Dow and S&P not far behind, down 1.79% and 1.65% respectively. The dollar had a whippy day as it oscillated on risk flows, haven currencies, in particular the Jpy gaining most by the sessions end. Oil continued to trade just above recent lows and Gold gained slightly in the risk off environment.
Markets are certainly taking the threat of an escalating trade war between the US and China seriously now and investors are preparing for further downside moves if what seemed close to impossible only a few days ago, does occur and the US raises tariffs on Chinese imports. What occurs in Washington both at the negotiating table and behind closed doors in the next few days could have far reaching implications for global growth and market stability over the long term. If the current situation does turn into a full out trade war between the two trading superpowers then we could see markets tailspin down to much lower levels. However, and investors are still hoping for this outcome, if we do see the US pull back on it’s threats and tariff increases are delayed then expect to see a good short term relief rally followed by more cautiously optimistic sentiment over the medium term.
Looking ahead to today’s trading day and focus in Asia will turn to New Zealand later in the day with the latest rate announcement from the RBNZ. In a similar situation to the RBA yesterday, the market is expecting to see a rate cut from the central bank although some still remain in the ‘hold’ camp and there should be some strong moves in the currency on either outcome. Chinese Trade Balance data is also due out later in the session. The London and New York sessions are once again relatively quiet in terms of fundamental data releases today and so expect trade updates and sentiment to dictate market moves once again.