The bloodletting continues on Wall Street as traders returned from the Easter break with selling on their minds. A renewed sell-off in technology stocks, amidst the never-ending trade war saga, kept the market on the defensive all day. China raised tariffs by up to 25 % on a $ 3 billion smorgasbord of US exports and while the trade tariffs are quite small, the markets are incredibly fearful that escalating trade tensions could go sideways and manifest into a global equity bloodbath.
Risk-off mentality kicked into overdrive as investors continue to reassess their technology positions after the Easter break. Move over Facebook (NASDAQ:FB) as traders have new targets in Amazon (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA), both now bearing the brunt of the technology sector purge. Negative headlines continue to haunt the electric car company. As well, President Trump's Easter Monday twitter tantrum directed at Amazon attacking the company's deal with the US Postal Service sent fearful investors and frenzied traders into an absolute panic mode. A mild case of risk-off indigestion early in the session quickly transformed into a full-out equity rout, leaving no one safe in its wake.
At the Asia open, the song remains the same as traders continue to discuss Trump trade threats. Tech sector woes amidst renewed pressure on oil prices means the makings of a perfect storm are at hand. But given the no one expects China and the US to go full bore trade war, are markets getting ahead of themselves?
Oil Prices
Oil prices slipped overnight with the exceptionally sharp declines on WTI, adding to the risk-off fever as OPEC compliance appears to develop a few cracks. Russian output has risen, Iran continues to skirt OPEC compliance, but with Saudi Arabia rumored to be cutting May prices of exports to Asia, it suggests that there is not a great deal of conformity within the alliance. On the surface, if Russia is thought to be cheekily reneging on the agreement, Iran marches to their own beat while the Saudi’s set prices to suit their domestic needs, is the alliance really on solid ground?
The macro landscape is looking suspect as well with modest global PMI’s pulling back, adding downside pressure as global purchasing managers remain extremely nervous about a possible escalation of a global trade war.
For the time being, the Iran geopolitical risk is on the back burner while the markets deal with the latest fissures in the OPEC compliance agreement, but putting the background probably one-off noises aside, traders would be wise to refocus on the geopolitical front for more definitive cues.
Gold Prices
Trade war risk isn’t about to leave anytime soon. China escalation appears to have more bite than bark as there’s growing fear this could escalate. And with an ongoing technology stock purge gaining momentum, safe havens roared back to life. Also, USDJPY is looking a bit worse for wear, but this latest bounce in gold is all about fear as fragile equity investors flock to havens for fear that the recent US equity rout could manifest into an outright global bloodbath. As the market continues to go through the exercise of what if, the fear of the unknown will continue to support gold prices
Currency Markets
Japanese Yen
USDJPY does what it does and fell to 105.70 as traditional safe-haven currencies react to China tariff and the US equity meltdown. But despite holiday thinned conditions, USDJPY volumes remained robust. Surprising. However, flows had been remarkably balanced below 106 suggesting there still some apprehension to full out re-engage USD shorts in the wake of quarter end flow. But with equity markets looking every so fragile we’re only one negative headline away from testing the key 105.40 zone. It’s going to be a choppy affair and expect the USDJPY to trade broadly in line with global equity sentiment that is looking exceptionally fragile this morning.
The Euro
The euro continues to trade in a very tight range despite making a half-hearted attempt higher before the equity malaise sent currency traders to the sidelines.
The Malaysian Ringgit
Contradictory signals abound with markets positioning for a trade war to escalate, oil prices dropping but the US yields continue to fall. While an outright trade war is not the market base case scenario, the fear of any escalation has spooked equity investors and sent the market into a risk-off mentality. With domestic headwinds start to blow, the ringgit will be hard pressed to pick up momentum today, especially ahead of this week's key US jobs report. Riskier currency trades will not be at the top of the cue today.