For the USD, lower yields, lower U.S. policy support from allies all mixes together for the USD confusion. Forex hasn’t reacted to the volatility spike in equities, maybe that changes with focus on JPY being key again. Watching 105.50 for more sparks, writes Bob Savage.
There was a 1935 short comedy film from Laurel and Hardy about escalating revenge chaos in big business – perhaps we all need a movie break before starting today.
We are all watching planes and grains as the Chinese tit-for-tat on U.S. tariffs spooks markets back into trade war alert. U.S. details 25% tariffs on $50 billion of Chinese imports from TVs to chemicals set to hit May 22 unless there is real progress on talks. China plans reciprocal tariffs on 106 U.S. products equal to $50 billion including soybeans and airplanes.
The U.S. stock futures are lower, bonds higher, USD mixed with Japanese yen (USD/JPY) gaining, while commodity-linked Australian dollar (AUD/USD) and Canadian dollar (USD/CAD) are lower with oil, copper and grains sharply weaker.
Focus beyond the trade battle rests on weaker data – with Service PMI misses in Japan and China, big drop in UK Construction PMI, lower than hoped flash core-HICP in the Eurozone and mixed Australian data with retail sales better but housing approvals worse.
Trends for global growth aren’t friendly to higher inflation hopes, driving more bond buying, with European yields dropping to 16-month lows again.
The politics of Europe also back in play with Macron facing the Spring strikes with rail the first salvo, airlines the second – likely hurting growth further.
The markets are going to look at the S&P 500 (SPX) 200-day as the pivotal resistance now and fear of a larger move lower in risk dominates today. The question is whether the U.S. bond yields can make up for this pain trade with 2.72% and 2.62% 10-year the next targets.
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