Trade Concerns Intensify as US & China Enter Round Two

By London Capital Group
London Capital Group

The escalating US -Sino trade spat continues to attract the bulk of investor attention as it moves towards round two. Following an initial levy on $50 billion worth of Chinese imports, which prompted a retaliatory measure from China; round two has seen Trump look to up the ante to a 10% tariff on $200 billion of Chinese imports, in the clearest sign yet that these tit for tat measures will continue to escalate until there are some serious economic consequences on the individual countries and to global sentiment.

Safe Haven Yen Rallies in Asia

As the US and China head straight towards a full-on trade war flows out of riskier assets are on the rise. US equity indices put in a mixed performance overnight, closing off session lows; however, US futures have taken another step lower since the close as escalating trade concerns continue to dampen risk appetite. Weak sentiment spread to Asian market overnight, which were putting in a mixed performance, whilst Europe is also seen extending its trade war inspired losses from the previous day.

Moves into safe havens have increased with the Japanese yen trading heavily and jumping 0.6% versus the dollar, breaking through the 200-day MA at 110.22 and then through the psychological level at 110.00 The Swiss franc was also better bid, pushing higher versus the dollar.

Sterling Struggles as May Under Pressure

The pound is still unable to focus on the Bank of England MPC rate decision on Thursday, as Brexit developments keep grabbing the headlines. The pound sunk heavily in the previous session as pressure on Theresa May mounted and the House of Lords defeated the governments’ “meaningful vote” amendment, instead supporting a rival proposal which gives Parliament more influence, sending the Brexit Bill back the Commons for a vote on Wednesday.

This will not only test May’s ability to steer a minority government, but also the pounds buoyancy as pro-EU rebels promise they can collapse the government if their demands aren’t met. Theresa May showing signs of weakness and an inability to control her party wouldn’t bode well for the future as several other pieces of legislation are still needed in order to prepare for Brexit. The pound is picking up slightly as we move into Tuesday, we expect trading to remain relatively muted given the lack of UK economic data and until after the vote on Wednesday.