Weak economic data and rising political tensions between the US and China have led to a soft start to the week in equity markets and a moderately firmer tone for the US dollar.
But it could be little more than a shift away from Trump's chest-beating US economic exceptionalism, to a more hawkish stance on China, which is likely to be a centerpiece of US President Trump's election campaign.
Trade war escalation remains unlikely near term
To what extent escalation in US-China tensions matters for investors depends on whether investors expect US import tariffs on a broader range of goods or a mark upon existing ones. But with corporate America already in the throes of an economic collapse in demand, it seems unlikely that US-China tensions will escalate from threats to higher tariffs in the near term.
The lesson of the day
But if you didn't sell in May and go away, so what did you learn today? The coronavirus blame-game and a looming US Presidential election are a toxic recipe for US-China relations. Politics, trade, technology, and capital markets are the critical fissure points again.
The currency markets
The subtle rise in trade war rhetoric shook out some US dollar short positions in Asia as most currencies in the Asia FX basket veered lower in concert with the broader USD move.
South Korea reported zero new locally-transmitted coronavirus cases for the third time in 5 days. The reappearance of North Korean leader Kim Jong-un heads off the possibility of a potentially destabilizing leadership change in the region. South Korea's April manufacturing PMI, at 41.6 from 44.2 in March, outperformed.
As far as the CNH, markets have reached a particularly excellent inflection point as it relates to the virus narrative and trade ward. But it is certainly not in China's interests to encourage currency weakness as that would inflame Trump's election grandstanding into political imbroglio. The 7.15 USD/CNH level has been a sharp inflection point for local Yuan traders and the PBo
C in the past, so eyes and ears were trained on the critical pivot level today. So after it held its suggest there good supply on offers indicating traders are respecting that line in the sand today.
Oil markets
After the move, lower at the open in heightened trade war rhetoric, oil prices are picking up momentum given that crucial supply and demand fundamentals are showing signs of betterment.
With the market rebalancing now in motion, traders will also commence positioning for a multi-staged tightening cycle. First led by retail and industrial consumption and to the latter end of the stick, aviation fuel demand, as travel restrictions will likely be at the tail end of the re-opening process.
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