It was a choppy session overnight, US equities waxing and waning through gains and losses before ultimately slipping lower in the last hour of trading, the S&P500 closing 0.7% lower. There was little concrete news to drive sentiment, but the scrim was thick with trade war innuendo.
Oil fell back on profit-taking ahead critical China trade data while NFP looms ominously on the horizon. Given oil markets' high level of sensitivity to negative news, this week's rally is showing signs of petering out as it’s unlikely either critical data point is going to present investors with a bundle of joy.
Investors are struggling to gauge how the gradual restarting of activities plays out. But sentiment appears to be shiting lower as the scope of shutdowns and travel restrictions are giving rise to economic uncertainty, which is gradually retaking hold – even more so ahead of what's bound to be a dreary NFP report on Friday; Even today, the downward revisions in estimates for April US payrolls continue to roll in. So, the market’s veneer is looking a lot less glossy heading into the US employment data.
There have been more back-and-forths between the US and China overnight, which has likely weighed on US equities, and sentiment remains thick with caution in early Asia trading. And with markets treading water and shifting to and fro between reopening optimism and Trump's trade rants, it’s hard to keep one's nerve in the game.
But it seems clear that traders are beginning to dust off their trade war playbook as USDCNH lurched higher in early Asia trade. But it's virtually impossible to get a read on these proceedings given Trump's proclivity to walk his trade aggression back. And therein lies the problem: the hard reprisal usually occurs in the final act, when all the mysteries are revealed.
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