Home / Blog / Market Analysis / Markets Morning - President Trump is happy to go all the way to $500 billion in Chinese tariffs, USD slides again, stocks drift

Markets Morning - President Trump is happy to go all the way to $500 billion in Chinese tariffs, USD slides again, stocks drift

Market Analysis /
Greg McKenna / 23 Jul 2018

Welcome to my daily Markets Musings.

You’ll see things are different from now on. That’s because the full note was approaching 2,000 words some days and I’m breaking it up into a number of reports on the Axi Blog each day now.

That way traders can subscribe to the Axi Blog easily and then cherry pick the yarns and markets of interest 

Feedback always welcome


Market Summary (7.43 am Monday, July 23)

CNBC released the whole interview with President Trump early Friday morning US time. In it the President said he’s prepared to go all the way to $500 billion in tariffs with China, can’t see why folks don’t think it’s a good thing to have a positive relationship with Russia, took aim at the weakness in the Yuan and the Euro, and gave a clear impression he might continue his attacks on the Fed.

That gave traders plenty to chew through.

Given recent positioning and data flow from the US and other regions of the globe, the US dollar has been and remains the most vulnerable asset to the Trump rhetoric right now. Naturally then after a concerted period of holding lows, the Euro was higher and is back at 1.1733 this morning. The USD index is at 94.47 after another failed foray higher last week and the Yen is much stronger with USDJPY at 111.29 after peaking at 113.16 last week.

Sterling is defying growing hard-Brexit talk over the past week. There was more chat from both sides of the Channel over the weekend which seems to suggest the EU is not being as malleable as British PM Theresa May would like. GBPUSD is at 1.3126.

The commodity bloc rallied as well with the CAD benefitting from some strong data. USDCAD is at 1.3135 – testing support. The Kiwi is down in early trade this morning though at 0.6787 while the AUDUSD is at 0.7416 and looking strong given recent data and ready for a lift if the USD keeps falling.

Stocks in the US looked like they might break open at one point but the S&P recovered to close at 2,801 for a 3 point fall. It was only a 0.1% fall but looks like a stall. Likewise, the Dow and Nasdaq 100 stalled too with falls of 0.03% each to 25,058 and 7350 respectively.

Europe was lower despite the solid bounce in Chinese markets Friday which saw the Shanghai Comp up 2%. Perhaps the fact the China A 50 only rose 0.1% tells us more about what foreigners think about China’s prospects right now.   At the close the DAX was 0.98% lower, the CAC lost 0.35% and the FTSE 100 in London was down just 0.07%.

After gaining 23 points Friday the ASX looks set to open lower this morning. SPI traders knocked 18 points off prices at the close on Saturday morning. It’s still in an uptrend but Friday’s move with China and reversal with the US looks ugly.

On commodity markets, the US dollar’s slip helped prices. Gold is back at $1231 this morning, about $20 an ounce above last week’s low. Copper is at $2.746, extending it’s recovery from the recent low near $2.67 and oil lifted a little as well. This morning Brent is at $73.07 and WTI is at $68.26.

Bitcoin lost some ground Friday. But it’s up around 2% over the weekend at $7,526.

Elsewhere the G20 meeting over the weekend has ended and the communique that was released speaks to concerns about “rising financial vulnerabilities, heightened trade and geopolitical tensions, global imbalances, inequality and structurally weak growth, particularly in some advanced economies”. YEP

On the day then, and we’ll all still be eyeing China, its markets, and the Yuan fix and subsequent moves. But other than that it’s quiet with the Chicago Fed National Activity index and existing home sales in the US the highlights.  

Have a great day

Macro Stuff that affects everyone and everything – either today or eventually



  • Do yourself a favour and find the 15 minutes today to watch the interview between President Trump and CNBC’s Joe Kernan.  You’ll see a President who is genuinely going to pursue the agenda he has articulated, who is not going to back down on China or the EU, who is pursuing multiple attacks on many fronts but seems across what he’s trying to achieve. And you’ll probably get a sense his Fed and forex comments aren’t one offs.
  • You’ll also note in that interview President Trump told CNBC he’s ready to go all the way with tariffs on everything China exports to the US and intimated something similar with Europe. President Trump is clearly watching the fall in the Chinese Yan recently and that’s something Treasury Secretary Steve Mnuchin highlighted in a Reuters interview over the weekend. In answer to the question of whether or not China was using its currency as a weapon Mnuchin said, “I’m not saying whether it’s a weapon or not a weapon. There’s no question that the weakening of the currency creates an unfair advantage for them…We’re going to very carefully review whether they have manipulated the currency”.
  • And while I’m talking Mnuchin, his comments on Europe and trade were interesting. At the G20 the US doubled down with the President’s comments at G7 that everyone should drop tariffs to zero and then just trade away. Mnuchin said, “if Europe believes in free trade, we’re ready to sign a free trade agreement. But he added such a deal needed to see the elimination of tariffs, non-tariff barriers, and subsidies noting “it has to be all three issues.
  • On the other side of the Pacific the Chinese seem to have taken umbrage with Larry Kudlow’s attack on President Xi. But a couple of Tweets from Hu Xijin, the EiC of Chinese mouthpiece the Global Times, were incredibly interesting in terms of the long game here. On trade and in response to the $500 billion threat Hu said, “Trump talks too much. He has talked about imposing tariffs on $500 billion of Chinese goods more than once. I don't even bother to write an editorial for this. Whatever he wants to do, just do it. China will hit back to the end”. Yes, they will. SO the trade war is just getting started unless one side folds.
  • But in a Thucydides Trap kind of way Hu’s tweet on Nuclear weapons was more chilling and suggests we may be on the cusp of the next nuclear arms race. Hu tweeted Saturday, “Trump's respect toward Russia is worth mentioning. Trump is a man who values strength, and he attaches great importance to military strength...China's relatively weak military, especially its nuclear power, which lags behind the US, is a major strategic sore point”. Taken together that’s exasperation at the US and also a kernel of what China needs to do to get the US respect.
  • There has been much chat about Brexit lately. AS I reported last week the EU has warned business to get its contingencies ready for a hard-Brexit. Theresa May has told the EU it’s time to change it’s approach to customs and the Irish border. But it seems Mrs May is not getting any traction on that front. EU negotiator Michel Barnier wasn’t to welcoming of the Prime Minister’s proposal with regard to the border saying it could cause fraud and an added layer of bureaucracy, which was unacceptable. Over the weekend Jacob Rees Mogg, a hardline Brexiteer, suggests it will be a hard Brexit with no deal and reversal to WTO relationship. While the Guardian Sunday seemed to coalesce all the competing thoughts and claims into a reasonably coherent narrative into a clarifying view that the EU is unlikely to give the UK an Article 50 extension – which is where May has been driving things recently – unless there is a big shift in UK politics. This could include another referendum or general election. If it is time just for the sake of putting off an inevitable no deal, then it will not happen,” one senior diplomat involved in the negotiations said.
  • Data matter folks. And on that score when it comes to trading and investing its more about “surprises” to the data then about the data itself. Of course in a macro sense whether the data is outright strong of weak is of primary importance. But in another example that people feel changes not levels it’s the data flow relative to expectations which is the key for day to day and week to week reactions by traders and investors.
  • What we’ve seen recently is a big improvement in data flow from a number of jurisdictions while at the same time US data has flattened out. It’s one of the reasons the comments from President Trump about the the Fed and the dollar have resonated. They fit the recent data flow. Throw in the CFTC positioning data (see forex section below) nd you can also see why the USD reacted and why the Euro and others could have further to rally.
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Click on me, I'll expand


Macro Stuff that affects everyone and everything – either today or eventually


Have a great day's trading.

Greg McKenna

Chief Market Strategist


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