State of unease

Two steps forward, three steps back on trade

It takes two hands to clap and despite President Donald Trump’s eager attempt to provide a positive rhetoric on US-China trade, the rift between the two sides appear far and wide. Bloomberg’s report that the officials from both sides have been struggling to arrive on a schedule for meetings with the latest implementation of tariffs casting some doubts on President Donald Trump’s latest rosy depiction of the situation. Notably, China’s Ministry of Commerce had also made known that the country is ready to take the complaint to the WTO showing the lack of common grounds. Likening the trajectory of the on-going US-China trade issue to trends within markets, it does appear that we have yet to see a reversal as of present.

While Wall Street had been absent on Monday for the labour day holiday, haven assets had certainly reacted towards the news seeing USD/JPY (大口） trade lower late Monday, though clawing back some of the losses into Tuesday Asia hours. Perhaps more telling of the dampening of risk sentiment on the back of the abovementioned development had been the move in the offshore yuan. USD/CNH was seen surging to a record level, trading above $7.19 level into late Monday. This comes close to $7.20 which had of late been recognized as the new line of the sand. Against the strengthening of the greenback, once again playing the role of a haven currency, it may be hard to tell if the Chinese authorities had likewise been intentionally allowing the Chinese yuan to weaken seeing the latest fixing suggesting otherwise. That said, the bias may with little doubt be on the upside with the US-China trade issue sliding into September to await the October 1 showdown. Watch the $7.20 level next for USD/CNH.

Source: IG Charts

Asia open

Asia markets saved on Monday by the better than expected Caixin manufacturing PMI may have the latest trade development to reckon with going into the second trading day of the week. To some extent, the likelihood of frontloading in August prior to the September 1 tariffs implementation may have contributed to the return to expansion for the Caixin reading, thus rendering the need for confirmation into September. For the time being, focus on the Reserve Bank of Australia with the off chance of another 25 basis point cut that could see the Australian dollar react. Dovish rhetoric and the likelihood for an underwhelming Q2 GDP reading on Wednesday nevertheless puts AUD/JPY on our radar for further downside potential amid the current downtrend.

The local Singapore manufacturing PMI and the August US ISM manufacturing figures will also be key items to watch on Tuesday.

Yesterday: S&P 500 +0.06% (Friday); DJIA +0.16% (Friday); DAX +0.12%; FTSE +1.04%