While last week’s market turmoil was exciting enough, it intensified again today. The DOW fell over 760 points yesterday as the trade war between the US and China is escalating. The NASDAQ finished lower for a 6th consecutive day, which is its worst losing streak since 2016. The DOW sold off for a 5th straight day. The stocks that tend to have the most to lose from these new set of tariffs were hit the hardest. These stocks were led by Apple. According to experts, “the policy of using tariffs as a tool has failed miserably”. It certainly looks that way. President Trump issued more tariffs last week, and as a result, the Yuan fall to its lowest level in over ten years. The USD/CNY was trading around 7.0500. As that was occurring, the President was tweeting about “currency manipulation” and once again took a shot at the Federal Reserve. Hopes from Experts for a US-China trade deal appear to be fading gone. The Yuan traded lower as expected but eventually stabilized after reaching highs near 7.0600.
The US Treasury official has labelled China a “currency manipulator”, which has not happened since 1994. Treasury Secretary Mnuchin said he will “engage with the International Monetary Fund to eliminate unfair competitive advantage created by China’s latest actions.” In response to this, China has condemned the US for “deliberately destroying international order.” In an editorial posted by People’s Daily, the Chinese official newspaper, it was quoted that it is the responsibility of “big countries” to provide “stability and certainty.” It also stated that “some people in the United States do just the opposite”, which could be a veiled reference towards President Trump.
It looks as if the lines are being drawn in the sand here. According to a group of analysts, rating the Chinese response in the trade war on a scale of 1-10 would rate an 11. Everyone seems to be focusing on the weakening Yuan, but the Chinese also have told their “State -controlled buyers” to stop purchasing US agricultural imports. This is going to be a “direct-hit” on the Midwestern states that were loyal to President Trump in 2016, which may cause campaign issues sooner than later.
In the aftermath of yesterday’s events on the US equity market, DOW Futures are actually trading positive this morning, indicating an opening later this morning of around 40 points. Stepping away from the trade war, investors will be focusing on data and the JOLTS (Job Opening and Labor Turnover Survey) will be released this morning. Earnings also will play a part in equity trading as Avantor and Bausch Health report before the bell, while Disney and Wynn Resorts are among those reporting after bell. Treasury yields are slightly higher this morning with the 10-year note trading at 1.7496%, while the 30-year bond was higher at 2.3020%.
Looking at the major currencies, the EUR/USD broke resistance at 1.1225 and traded as high as 1.1250 before falling back towards the 1.1200 level. Better than expected factory orders in the Eurozone helped the currency.
After testing the support level at 1.2100 GBP/USD has reverted back towards the 1.2200 area stabilizing above the 1.2150 area as the market appears to be accepting a “no-deal” Brexit as the most likely scenario.
USD/JPY made a strong technical correction off the 105.50 level heading all the way back towards 107.00 before trading back towards the 106.40 area. Part of this reversal was caused by an “oversold” situation as traders covered short positions.
Lastly, after their meeting yesterday, the Reserve Bank of Australia left rates unchanged at 1.00%, with their accompanying statement being a little more towards the dovish side. The central bank said it is likely to take longer than expected for inflation to return to 2%.