Tariff delays, what next? | CMC Markets Daily Commentary
There is no other person like President Trump who has delivered this much volatility to the financial markets since he took the White House on November 2016. It has taken him one tweet to wipe out a trillion dollars of market cap and one phone call to restore it. The strong buyback in equities and other risk assets were fuelled by tariff-delay relief as well as short-covering activities, in which traders cut down short positions by buying back contracts in the market.
The question now is how far will this relief rebound go? A partial tariff delay is not going to solve the core issues between the US and China. Approximately $110 billion worth of Chinese imports including apparels, footwear and agricultural products are still subject to a 10% tariffs increase on September 1st. Therefore, markets will perhaps soon come down to earth and face the reality of a world of elevated trade tariffs, slower growth and policy inconsistency.
Relief from the trade front also led to a reduction in Fed rate cut expectations, on top of a strong US core CPI reading last night. The resulting negative impact over equity markets will likely offset the optimistic sentiment from trades.
USD/JPY surged over 1% to 106.42 last night, reflecting a drastic swing away from safe-havens. USD/CNH declined as much as 1170 pips during evening trading hours before paring some losses to 7.026 this morning. In the near term, the yen and offshore renminbi are among the most volatile and sensitive currencies in the face of trade updates.
Asian markets are set to open higher on trade optimism, but ongoing Hong Kong (HK) chaos in the airport and Argentina’s currency rout are set to dampen the sentiment to some extent. The Argentina peso slumped another 5% against the greenback today while its equity benchmark, Merval index rebounded 10%. In HK, investors are concerned about Cathay Pacific Airlines’ future due to prolonged traffic disruption and reputational damage.
In Singapore, the benchmark index STI rebounded over 1% to 3,170 points on Wednesday. Financials, technology, and real estates were among the outperforming sectors, whereas defensive counters – ST Engineering, Wilmar, Sheng Siong – were falling behind. Local market movement is reactive to the overseas environment and will continue to move in tandem with regional markets.
USD/JPY – 1 hr
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