De-Risking as US-China Trade Talks Resume
Overview: The end of the tariff truce between the US and China continues to dominate investment considerations. The truce was often cited in narratives explaining the recovery of equities from the Q4 18 slide. Ahead of the midnight US tariff hike, global equities are being smashed. Korea's Kospi was off 3%, and Hong Kong's Hang Seng was shed 2.4%. Shanghai lost 1.5%. Europe's financials and consumer discretionary are the biggest drag on the Dow Jones Stoxx 600, which is down around 1% with not sector gaining. The S&P 500 is poised to gap lower, and possibly into the old gap from April 1 (~2836-2869.4). Bonds are mostly firmer, with benchmark 10-year yields two-three basis points lower. The 10-year Bund yield is pushing beyond minus six basis points. It had bottomed near minus 10 bp at the end of March. Italy and Greek bonds are treated like risk assets with yields spiking higher. Blackrock was had been interested in a trouble Italian band (Carige) has pulled back. The Japanese yen and Swiss franc are firmer, but safe haven may be a misnomer. They are used as funding currencies, and as risk comes off, the asset is liquidated, and the funding currency bought back. Some speculative flows trying to front-run the unwinding of these structured trades may also play a role. Norway's central bank indicated that a hike in June is likely and this is helping the krone resist the dollar's strength.....MUCH MORE
Asia Pacific
What was expected to be the last round of US-Chinese trade talks will begin today, a day later than initially intended, and the Chinese delegation is smaller. In the well-choreographed world diplomacy, these subtleties are important. The critical question that followed Trump's tweets was the reaction from China and investors. Investors have sold some risk assets, and Chinese shares were among the biggest losers. Investors also boosted the risk of a Fed cut after having trimmed the odds after Powell talked about the transitory factors that that may be behind the soft inflation in recent months and unexpectedly large drop in the unemployment rate to 3.6%, a nearly half-century low. Now the attention turns to China's response.
China's Commerce Minister was being quoted on the news wires acknowledging that "counter-measures" would be adopted if the US went forward with its tariffs. If China were going to detail their response, they would have done so. That they didn't, increases the uncertainty and makes whatever they do a surprise. US markets will be closed, but Shanghai and Hong Kong will be open.....
