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Risk aversion reigned supreme during the Asian session, as traders price in the possibility of China preparing for a “full-scale” trade war.

  • New Zealand trade surplus widened from 193M NZD to 294M NZD in May
  • NZ ANZ business confidence dips further from -27.2 to -39.0 in June
  • U.K. Nationwide house price index improves from -0.2% to 0.5% in June

Major Events/Reports:

China preparing for a “full-scale” trade war?

Earlier today news blogs cited Sassan Ghahramani, CEO of SGH Macro Advisors, and his note to his clients where he said that Chinese President Xi Jinping has ordered preparation for a trade war.

According to Ghahramani, Xi spent over two hours talking about U.S.-China relations and called on provinces and ministries to “be prepared for a full-scale trade war.

He even added that the People’s Bank of China (PBoC) will not increase its U.S. Treasury holdings and even reduce them “appropriately.”

The speculation might have gotten the momentum it had if the PBoC hadn’t set the yuan mid-point reference rate to 6.5569, the weakest fix since December 25, 2017.

Time to bring out the drums of (trade) war?

Risk aversion in the markets

The Asian bourses mostly shrugged off an improvement in the U.S. equities. Instead, it priced in the possibility that China is preparing its own weapons against a seemingly inevitable trade war.

  • Nikkei is down by 0.28% to 22,279.9
  • A SX 200 is up by 0.12% to 6,201.2
  • Hang Seng is down by 0.58% to 28,713.8
  • Shanghai index is down by 0.45% to 2,831.579

Commodity prices also took hits, with crude oil losing some of its shine following reports that the U.S. is pressuring its allies to back off of Iran’s supplies.

  • Gold is down by 0.25% to $1,255.70
  • Brent crude oil is down by 0.03% to $76.60
  • U.S. WTI is up by 0.24% to $70.81

Major Market Mover(s):

NZD

Kiwi bears extended their party from the U.S. session and continued to drag on the high-yielding comdoll. Of course, it also didn’t help that markets had fixated on the possibility of a “full-scale” trade war.

NZD/USD is down by 28 pips (-0.41%) to .6822
NZD/JPY is down by 39 pips (-0.52%) to 74.98
AUD/NZD is up by 36 pips (+0.34%) to 1.0819
EUR/NZD is up by 99 pips (+0.58%) to 1.7090
GBP/NZD is up by 108 pips (+0.56%) to 1.9390

CNY

The PBoC weakened its yuan midpoint fix to 6.5569 per dollar today, which is 389 pips (0.6%) weaker than the previous fix of 6.5180. That’s the lowest since December 25, yo!

The weakness led analysts to speculate that a weak yuan would be one of China’s bullets in the upcoming (and inevitable?) trade war.

Watch Out For:

  • 8:00 am GMT: Credit Suisse economic expectations
  • 8:30 am GMT: BOE’s financial stability report
  • 8:30 am GMT: BOE FPC statement
  • 8:30 am GMT: BOE Governor Carney to hold a presser in London
  • 10:00 am GMT: U.K. CBI realized sales (10 expected, 11 previous)