Just when things seemed to be meandering along smoothly with investors and traders alike looking to take a bit of a breather, USD/CNH has jumped 300 pips and is back above 7 and drawing the whole risk-market kit and kaboodle along for the ride. "China Foreign Ministry spokesperson Wang Wenbib: Confirms to close Houston Consulate following US demand; labels such actions as a provocation. Urges US to correct wrong decisions or there will be retaliation."
There seems to be a lot of confusion as AUD/USD has gone lower and USD/CNH higher on the headlines about China's consulate in Houston.
The only real headline that is getting shared on interbank blogs is The Houston Chronicle reports that there was a fire at the consulate on Tuesday. Butt this would be a very much delayed reaction as the fire was overnight, so there is probably more to the story than that.
We have grown somewhat complacent to the US stirring the China hornet's nest. But, in tandem, traders worldwide logged onto Twitter account awaiting President Trump's response to these China threats that hit like a ton of bricks. But, given much of his election campaign has been built around the anti-China sentiment in light of the HK bill, if this is, in fact, a China provocation, traders exposed to trade-war risk assets like oil and local Asia currency proxies will be forced to pare risk, as the President's response won't be pretty
This is a very fragile market, and the last thing trader need is to deal with another unwanted episode of "Axis vs. Allies."
Hopefully, this is little more than something lost in translation, and US-China tensions remain at the pillow fight level. So, I think it time to hold the course, until more clarity is shed on the situation, as the Houston consulate seems like an unlikely platform from which to escalate US-China tensions. As left to their own devices, it seems the path of least resistance across equities is an ongoing grind higher.