Lingering trade jitters

Tariffs threat overshadowing all concerns

President Donald Trump’s latest threat to impose 10% tariffs on $300 billion worth of Chinese imports had been a curved ball thrown at markets in a week contemplating the lack of support from the Fed. With a third of the products in the consumer electronic category and hitting at the core of the tech sector, the semiconductors producers, the broad fear is that not only will the fresh tariffs continue to weigh on manufacturing, the slump will finally bite on the services pie as well.

As far as the market is concerned, the expectation for another Fed rate cut to follow in September had sharply risen to 100% from approximately 67% a week earlier and this was despite the latest July payrolls arriving matching expectations. Headline non-farm payrolls was seen at 164k while unemployment remained at the 3.7% lows. Average hourly earnings had also accelerated to 0.3% month-on-month which ought to have pared the rate cut expectations, but against the face of the latest tariffs threat, this backward-looking data had mattered little.

With the plunge past the 3000 level for the comprehensive S&P 500 index, prices can now be seen deviating from the uptrend. The interest to seek put protection had however been only mildly lifted as present, seeing the index’s put-call ratio still below mean. Look to any significant lift here to mark an even more bearish turn in sentiment. Event risks in the week includes the likes of Fed speakers, potentially coming through with clarifications and updates in light of the latest turn of events.

Source: Index Indicators

Safe haven hunt

Risk aversion had certainly been the latest theme for markets. As noted last week, USD/JPY (大口） had continued to chart its way lower putting the $106.00 level in sight. Likewise with gold prices, the uptrend had continued in the past week and should be one to continue following with the stalemate between US and China likely to linger. While this will be one for further down the road, the expectation for the Fed to turn more dovish going into September on the back of trade tensions could see the USD reverse in strength. In turn for gold prices, this will be a bullish development, one to watch.

Source: IG Charts

Asia open

Trade jitters linger for Asia markets going into the fresh week, one to weigh on both Asia equities and currencies. The bullish bias for USD/Asians will be one to continue tracking going into the start of the week seeing USD/CNH broaching the $7.00 level. A breach above could see to long-term stops being triggered that may bring about strong reactions, one to be cautious of. Against the current climate, a break may not be one to surprise the market any longer.

China’s Caixin services will be released this morning, alongside services PMI out of other regions such as the US. Indonesia’s Q2 GDP will also be out in the day. That said, it will also primarily be the Hong Kong market we will follow in the day as protests edge into a weekday for Hong Kong and is expected to disrupt key economic linkages such as road and airport operations.

Friday: S&P 500 -0.73%; DJIA -0.37%; DAX -3.11%; FTSE -2.34%