As for the key on the day, pay attention to euro/yuan (EUR/CNY) – it’s flashing red for USD as the euro breaks 8 and opens 8.25 targets. The Chinese may be looking to replace U.S. with Europe in a more meaningful way, writes Bob Savage Tuesday.

The muted reaction of markets to the expected Trump escalation of trade measures on China reflects less calm and more hope that negotiations follow and lead to a deal.

The tiered roll-out of new U.S. tariffs on Chinese goods confirms the skirmishes leading to a larger battle but the 10% rate is lower and any 25% increase is months away, allowing time for a deal.

The bounce back in Asia shares and Chinese yuan (CNY) reflect that most of this isn’t news but as expected. China also didn’t immediately retaliate though it did vow to react later. The Chinese are stoically planning more domestic stimulus with more stockpiling to wait it out.

The WSJ highlights the unintended consequences of this mess – as the process helps China be more competitive. However, today’s muted reactions have no voice in future risks and as such the relief rally may be less convincing. The economic battles between the U.S. and China have a larger political backdrop as China uses this as an opportunity to win over hearts and minds with Europe clearly at the center.

The battle lines for this war are growing not shrinking. For markets today, there was little other news and the muted reactions in equities helped but emerging markets are less obviously joining the party and commodity currencies like the Aussie (AUD) and Canadian dollar (CAD) are bouncing a bit but not out of their bearish range.

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