Global risk appetite is on the back foot following a further escalation in tensions between the US and China over trade. US tariffs of 25% on $34bn worth of Chinese imports are due to kick in on 6th July and US President Trump yesterday upped the ante by announcing a possible 10% tariff on a further $200bn of Chinese imports. Predictably, Chinese policy officials responded by threatening that China would match any such tariffs. US equities ended the day slightly weaker with the S&P 500 at the lower end of a very narrow 10-day range and Asian equities were down overnight.
This backdrop continues to benefit the so-called “safe-haven” assets, including the Japanese Yen and Swiss Franc which are both threatening to hit multi-month highs. The Dollar, which had a slight wobble yesterday, also made further gains overnight and is now at its strongest level since mid-March 2017. The AUD/USD cross, often seen as a proxy for China-related currency trades, dropped as far as 0.736 this morning – its weakest level since end-2016 – with little support from the Reserve Bank of Australia’s policy meeting minutes.
With few tier-one macro data due for release this week markets are likely to focus on geopolitical issues – including an escalating trade war between the US and major trading partners and the OPEC semi-annual meeting on Friday – and on scheduled central bank policy meetings and speeches.
