Market sentiment remains cautious as President Trump’s threat to increase tariffs on Chinese imports has been realised. At one minute past midnight (on the US east coast) the US increased tariffs on $200bn of Chinese imports from 10% to 25%. This move ramps up tensions in the trade talks and threatens to escalate the dispute to a new stage of retaliatory moves. Trump has promised more tariffs on a further $325bn of Chinese imports to come. There has been nothing official yet, but how China responds could be crucial. A belligerent response would certainly inflame the situation and threaten a significant negative spiral in relations. However, apparently President Trump received a “very beautiful letter” from President Xi, whilst the talks between the two delegations continue today. All is not yet lost and an all-out trade war can still be averted. Perhaps this letter from Xi is giving markets hope of conciliation. Asian trading has been relatively positive, and whilst there is still a safe haven bias to trading, there is nothing decisive, for now. Oil is higher and also equities are looking reasonably positive today. This suggests traders are maybe looking on the bright side, again, for now. We will know more in the next day as the talks conclude. The response from US Trade Representative Robert Lighthizer (a hawk on China) and of course President Trump could be crucial for the weeks and months ahead.
Wall Street closed weaker, but well of the session lows, with the S&P 500 -0.3% at 2870. Having earlier been lower, US futures have recovered to flat today, helping Asian markets higher overnight. The Nikkei closed -0.3% lower whilst the Shanghai Composite was strong higher by +2.7%. European markets look set for a good bounce in early gains, with the FTSE futures +0.9% and DAX futures +1.0%. In forex, there is a mixed sentiment with little real direction of note on the majors. In commodities, gold continues to consolidate, whilst oil is ticking slightly higher by around half a percent.
US inflation once more takes the focus on the economic calendar today. First of all though a clutch of UK data for March is at 0930BST. UK monthly GDP for March is expected to be +0.0% (+0.2% in February), with the UK Prelim Q1 GDP expected to be +0.5% (+0.2% in Q4 2018). It will also be interesting to see how UK Industrial Production for March sits, with consensus expecting +0.5% on a year on year basis (which would be up from +0.1% for the year in February). The UK Trade Balance is also expected to see the deficit improve slightly to -£13.8bn (from -£14.1bn in February). The big focus for markets will be at 1330BST with US CPI for April which is expected to improve on both headline CPI to 2.1% (from +1.9% in March) and core CPI to +2.1% (from +2.0% in March). It will also be worth keeping an eye out for Fed speakers, with Lael Brainard (voter, dove) at 1330BST and John Williams (voter, leans hawkish) at 1500BST.
Chart of the Day – NZD/USD
The Kiwi was been one of the worst performing major currencies in recent weeks. So with the rebound yesterday is this another chance to sell? The downtrend channel of the past six weeks has taken the market below the support at $0.6590 which now becomes a basis of overhead supply. The trend channel comes in to provide resistance at $0.6620 meaning there is a near term sell zone between $0.6590/$0.6620. An early