Market Drivers April 4, 2018
- Dollar drops on news of China retaliatory tariffs
- EZ CPI 1.4% Core 1.0%
- Nikkei 0.13% Dax -1.05%
- Oil $62/bbl
- Gold $1342/oz.
- Bitcoin $7300
Europe and Asia
GBP: UK PMI Construction 47 vs. 50.1
EUR: CPI 1% vs. 1%
North America
USD: ADP 8:15
USD: ISM Non- Manufacturing 10:00
China responded to US tariff moves today with trade sanctions of its own, levying tariffs on more than $50 billion dollars worth of goods and services, sending the dollar lower in early London dealing, as USD/JPY touched 106.00, while EUR/USD rose to 1.2300.
The Chinese move, as many analysts noted, was proportionate, immediate and highly political in nature—targeting soybeans, industrial goods and other industries that are sure to cause US President Donald Trump difficulties with his base in the Midwest.
Despite the swift response, Chinese officials tried to strike a conciliatory tone, emphasizing that they were not interested in a trade war and were looking for a negotiated solution. Still, the Chinese made a not so veiled threat about international capital markets—a more than obvious hint to the fact that China holds more than $1 trillion of US debt and therefore could wield considerable power in that arena.
One of the unintended consequences of the recent actions is that the current wave of risk aversion has created a flight to safety move into US bonds, thus allowing China to liquidate its position in US Treasurys with minimum slippage.
On the more immediate front, the response against imported industrial goods is sure to hurt Boeing (NYSE:BA) which is a massive component of the Dow and could therefore cause a deep gap lower on the open, which could bring a fresh wave of risk aversion to the market.
The political news has overshadowed the economic calendar today, but traders will still focus on ADP and US ISM Non-Manufacturing data due later today, and any positive surprise could ameliorate today’s sour mood. On the other hand, if the labor data shows an unexpected slowdown in job growth, it could be the catalyst for much broader selloff during the day, and could take USD/JPY towards 105.50 as longs capitulate completely.