Risk-on trade for Asia markets from tariffs delay

China tariff increase moved to October 15 from October 1

Perhaps one of the lingering fears despite the announcement of the early October meeting had been the aggravation of the next round of increase in tariffs from 25% to 30% for 250 billion dollars’ worth of Chinese imports and what it would do to the US-China relations and markets. This had notably been eliminated in the near-term with the latest update from President Donald Trump on the two-week delay. USD/JPY (大口） was seen ticking up on the announcement, breaking the $108 level when last checked with this risk-on mood renewed.

With this slight improvement in conditions for the US-China trade issue, coupled with the anticipation of the suite of stimulus from the series of central banks, Asia markets are expected to be fired up into the Thursday trading day. This also follows China’s Ministry of Finance announcement with the list of exempted products from the additional tariffs on Wednesday. While Global Times’ editor Hu Xijin had noted that the tariffs exemption does not represent concession from China, it nevertheless reflects the growing impact of the tariffs upon the wider Chinese economy. As the series of data including trade and the latest PPI numbers had shown, China’s economic conditions had continued to trend downwards to reflect the deterioration. This could prove to be key to seeing further alleviation of the situation even if we do not get a trade deal in the medium term. Look to the gains across Asia markets into the Thursday session.

EUR trading softer ahead of the ECB

On FX, notably with the latest US PPI strength and the surge in risk-on mood from both the tariffs delay and central bank anticipation, we have seen USD/JPY trading above $108 as told above. Specifically, on EUR/USD, one would note that prices had declined once again ahead of the European Central Bank (ECB) meeting to oscillate around $1.1010 levels after touching the week-to-date low. The expectation for the suite of stimulus expected in the upcoming ECB meeting as we know had been built up in the past weeks with poor economic readings out of the likes of Germany and fuelled further by conversations from ECB members. As such the risk here would be the likes of ECB delivering short of the market’s anticipation that could see to the aggressive unwinding of positions for a market having priced in these stimulus views. For EUR/USD this could would mean upsides are expected to be seen with the next resistance level at around $1.1052, coinciding also with the downtrend resistance. US CPI release will also be in the mix in the Thursday session that would play a role in guiding Fed cut expectations.

Source: IG Charts

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