Global equity markets were smashed overnight as China hit back at US tariff increases with some of it’s own. As anticipated, China confirmed tariff rises on a range of US goods and markets reacted strongly as the trade war escalated. US indices took the brunt of the pain with the Nasdaq down 3.41%, the S&P and Dow suffered as well closing down 2.41% and 2.38% respectively, Asian markets are expected to follow on with the downward momentum on their open. Haven currencies gained ground with the Jpy and Chf driving higher against the greenback and on the crosses and risk pairs continued to push lower, the Aussie down under the 0.6950 level as the Yuan fell hard. Gold jumped over 1.5%, breaking well through resistance levels as it’s haven status attracted more flow.
Markets are reacting to escalating tensions in the trade war between the US and China and there may be some much tougher days coming. The speed of the turn around in prospects for a trade deal between the two trading superpowers has been swift and many investors will have been caught out by it. Comments coming from both sides now suggest a hardening of resolve and the ‘buy the dip’ mentality that has served traders so well over the last few months will not be a winning strategy in the days and weeks ahead. Stock markets have performed tremendously well over the first four months of the year and this has been aided by central banks turning considerably more dovish on global growth concerns, now we’re seeing a realisation of those fears and investors will now be looking for cuts to come through sooner rather than later.
Looking ahead to today’s trading sessions and once again it’s thin on the ground in terms of fundamental data releases. There’s no tier 1 data due in Asia but market focus will swing to the UK on the London open with the employment and Earnings data due for release. There’s nothing major on the calendar in the New York session either but expect volatility to remain high as investors remain focussed on the newswires and any trade updates.