Selloff to continue as trade war fear deepens, yuan sinks | CMC Markets Daily Commentary
Asian markets are posit to open lower on Monday, as sentiment is dampened by the abrupt escalating of the US-China trade tariffs last week. President Trump’s threat to impose new 10% tariffs on the remaining 300 billion Chinese goods marks a retreat of the trade negotiations, and potentially lead to higher economic and political risk on world economy that has already slowed down significantly.
Chinese offshore yuan CNH tumbled against the USD as trade war fear deepens. USD/CNH spiked above the 7.00 mark and traded at 7.081 at the moment of writing.
US nonfarm payroll came in within expectation last Friday, with 164k new jobs added to the US labour market. Unemployment rate remained at 3.7% – four decade low and wage growth expanded at healthy rate of 3.2%. Overall, the nonfarm payroll data underpinned the strength of the US job market, which is not helping to warrant another interest rate cut soon. Nonetheless, the future’s market is still pricing in a 100% likelihood of a Fed rate cut in Sep FOMC meeting due to heightened trade risk.
Due to general risk-aversion sentiment, safe-haven assets namely gold, Japanese yen and treasuries were among the best performing assets in the market these days. Gold price is attempting to break out above a key resistance level at US$ 1,439 (161.8% Fibonacci Extension) and the next resistance can be found at US$ 1,468 area.
USD/JPY has broken down a support at 106.35 (127.2% Fibonacci extension) and will probably head towards the next support at 105.2 area (161.8% Fibonacci Extension) if traders continued to react negatively on trade issues. AUD/JPY, another proxy gauge of the broad market sentiment, has fallen sharply to 71.87 area – the lowest level in seven months.
In Singapore, the Straits Times Index opened 1.2% lower as broad profit-taking activities kicked off. Banks, technology, real estates and industrial were among the worst performers, whereas defensive consumer staples and less cyclical sectors such as posting were performing relatively better.
The Hang Seng Index future is pointing to a 1.6% decline, as the market is not only affected by the trade war, but also by the political chaos that has been lasting for nine weeks.
The ongoing protest and riot has start to erode investor confidence about the city’s future, in particular the real estate, luxury retail, tourism and even public transportation sector. The protest arising from the extradition bill has likely spiralled into a deeper, wider crisis in which HK citizens are questioning about the city’s political future and democratic transition. The ongoing protest has also put negative pressure over the city’s stability and reputation, potentially hurt business and investment in the long term.
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