Headlines:
Markets:
- CHF leads, USD lags on the day
- European equities higher; S&P 500 futures down 1.6%
- US 10-year yields down 2.6 bps to 4.304%
- Gold up 1.3% to $3,120.73
- WTI crude down 2.7% to $60.67
- Bitcoin down 1.5% to $81,896
Trump’s tariffs pause led to an exuberant turnaround in markets yesterday but as the dust settles, we’re left to digest what it all means in the big picture. As things stand, the trade war has narrowed in terms of breadth but deepened in terms of depth. The sole focus now is China and talks have not yet even begun on that front, according to White House economic adviser Kevin Hassett.
China at least refrained from escalating things on the tariffs front, for the time being. Still, this chart is not a pretty one involving the two biggest economies in the world:
And despite Trump “only” applying a blanket 10% tariffs to everyone else, it still brings the effective rate of tariffs to the highest since the 1930s.
h/t @ Peter Berezin (BCA Research)
So, there’s some food for thought for markets in trying to decipher the potential repercussions this is all going to have on the global economy.
But hey, at least so far today the bond market is keeping the calm but we are seeing equities take a step back from the euphoria while the dollar is hammered once again across the board.
10-year yields in the US are keeping calmer, holding near 4.30% with 30-year yields sitting around 4.75% on the day. There’s still the 30-year bond auction coming up later, so watch out for that as well.
As for US futures, they are down as traders and investors are digesting the entire situation. The relief rally yesterday was historic but short covering and softer liquidity definitely exacerbated the moves. We’ll see what will happen next with trade headlines still in focus but also the US CPI report, though it should be put to the backseat on a week like this.
It’s now a question of how optimistic do market players really want to be up against a US-China trade war and tariffs as a whole dragging down the world economy. Adding to that, we’re not even certain of the extent of the damage caused by the basis trade implosion. So, there’s that to consider.
In FX, the dollar is being punished once again as questions continue to surround its status as a safe haven since the whole tariffs saga. EUR/USD has more than erased the drop from Trump’s tariffs pause announcement, surging up by over 1% to 1.1070. Meanwhile, USD/JPY is dragged down by 1.5% to 145.50 and USD/CHF down over 2% to just under 0.8400 on the day.
Even despite concerns with regards to China and the trade war, AUD/USD managed to pick itself up from 0.6150 to 0.6185 on the day currently – up 0.5%.
In other markets, oil is also back down as risk trades take a step back today while gold continues to surge in this volatile and uncertain environment. The precious metal is now up over 1% again today to above $3,100.
It is all shaping up to be another interesting and wild day in US trading later. So, brace yourselves.
