Traders hoping for a swift return to normality will probably have to wait a little longer. Stock exchanges in particular are showing some of the most inhospitable trading conditions observed in years. Between the massive intra-day swings, huge gaps and violent reversals, current markets are no place for the fainthearted. US indices have closed lower over the past few sessions, or there about, but the sheer size of the daily candles almost makes the closes irrelevant. Asian stocks are once again on the back foot this morning, with the Nikkei 225 and Hang Seng indices struggling to find solid ground.
The new tariff regime imposed by the Trump administration immediately forced many affected countries into adopting a more reconciliatory tone, with the notable exception of China. The spat between the Chinese and US governments is resulting in rapidly escalating trade tariffs, which are beginning to spill over to currency markets. The offshore Yuan fell to a new record low yesterday after the People’s Bank of China allowed USDCNH to climb above 7.40 for the first time. The onshore Yuan meanwhile is facing its lowest levels since before the 2008 peg.
Gold made a valiant push to reclaim $3,000 this morning in Asia, no doubt helped by weakness in the Dollar. Bitcoin on the other hand captured no such momentum. It is not unfair to say that cryptocurrencies in general have failed to offer any alternative environment to traditional finance, instead behaving merely as a marker for general market sentiment. The so called “decoupling” will have to wait.
The economic calendar is devoid of content this week, with the possible exception of the FOMC minutes later today. Given everything that has happened since the last meeting however it is hard to say just how relevant the release will prove to be. Interestingly, there has been a dramatic shift in interest rate prediction markets, with the next meeting on the 7th of May now favouring a 25-bps cut. Before the events of the past week, markets were looking at a 90% probability of a rate hold. US inflation numbers may pique interests a little tomorrow, but anything relating to the developing trade situation will obviously continue to occupy centre stage.
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