Jitters abound
Not entirely unexpected, President Trump is looking to thwack China with the US 200 billion in tariffs as early as next week. Asia equity markets predictably have taken it on the chin as the market has that distinct taste of risk off. But this reaction could be magnified by weekend profit taking and the emerging market tumult that continues to weigh on sentiment.
While a reality check for some, the pessimist in me was still expecting this level of trade escalation given that the administration will not give up on their view that China is a currency manipulator. However, the optimist in me thinks this may be little more than another in a long line of a friend of foe psychological tactics that the President is well known to use. Indeed, the markets are a bit discouraged, but we are far from meltdown status as investor and traders alike consider all possibilities.
NAFTA
Discussions appear to be going down to the wire as both parties are expected to return to the table early in the morning( EST) after yet another late-night session. Reports are circulating Chapter 19 of the original NAFTA agreement a primary stumbling block (anti-dumping dispute mechanism).
The Canadian dollar traders in Asia reacted negatively to the lack of progress pushing USD/CAD through the psychologically crucial 1.3000 level while following through actions saw the loonie touch 1.3025 on a wave of weaker stop loss positions triggered. Not a great day for trade deals indeed.
China PMI
China August official manufacturing PMI has come at 51.3 versus 51.0 expected. Non-manufacturing PMI is 54.2 versus 53.8 expected, and Composite PMI is 53.8 versus 53.6 prior.
The data should calm some nerves round China economic woes although the tail risk was for a weaker than expected print and my may cause some long USD/CNH to cover ahead of the weekend. But the markets will be singularly focused on next months China data dump before making any medium-term conclusions.
With that said, I don't feel any more positive than I did earlier in the morning but there's certainly no need to pop another "Losec" on this somewhat comforting print.
Argentinian Peso is 'Messi'
The Argentina markets are a mess and with the Central bank falling on the sword hiking the repo rates to an ungodly 60% while digging into their reserves in an attempt to add some modicum of stability. In my view, nothing good ever comes from aggressive intervention. A short-term reprieve which allows traders to short at better levels, but in this case, not even a reprieve as capital outflows surge.
Turkish lira basted
Another day another brutal start for the Lira.
The Lira has traded poorly throughout the session on yet to be confirmed report that the deputy Central Bank Governor has resigned to join the Development Bank of Turkey. Indeed, when it rains, it pours.
Of course, early morning in Asia is not a hotbed of liquidity where major banks are quoting airport type spreads.
Commodity Market Trade in Asia
Oil Markets
There was tentative buying interest throughout the Asia morning session despite a slightly stronger US dollar and little sign of progress on the USD-China trade front. But there remains that underbelly of support from this weeks inventory reports that showed declines in US and Antwerp crude.
Despite the unnerving prospects of the trade war escalation, dips are supported as the impact of US sanctions on Iran is still dominating sentiment encouraging traders to stay long. And while inter desk discussions about OPEC and their allies are thought to be in the process of agreeing to a price stability pact, there's enough doubt and scepticism on oil desks that the extra barrels will not offset the demise of Iranian output.
Gold Markets
Its taken a while mind you but Precious traders in Asia finally reacted to the toxic combination of trade risk and emerging markets tumult taking gold higher mid-morning on good volumes. And while the yellow metal its trying to shake its Mr Irrelevant status these days, if the President does push through with his 200 billion in proposed tariffs next week, it's hard to imaging equity markets reacting favourably.
With that in mind, hedgers are taking advantage of firm support at the critical $1200 level and putting on some insurance in case trade discussions with Canada go sideways, and the US goes forward with their substantial tariff threat on China. Next week could be a bit rough on the old stock portfolio.
Ultimately, however, unless there is some surprising shift in Fed policy or the USD dollar decided to turn upside down, specs will be looking to add to their shorts on rallies.
Disclaimer: This article is for general information purposes only. It is not investment advice, an inducement to trade, or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Ensure you fully understand all of the risks involved and seek independent advice if necessary. Losses can exceed investment.
by Stephen Innes