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Trade war concerns just got real when U.S. President Trump signed a memorandum to impose tariffs on $60 billion worth of Chinese imports. Chinese officials also talked tough, further stoking fears that retaliation could have significant repercussions on global trade.

Commodity currencies took the largest hits while U.S. equity indices closed more than 2% lower.

  • U.S. initial jobless claims at 229K vs. 225K forecast, 226K previous
  • U.S. flash manufacturing PMI up from 55.3 to 55.7 vs. 55.4 forecast
  • U.S. flash services PMI down from 55.9 to 54.1 vs. 55.9 forecast
  • U.S. could impose tariffs on up to $60 billion worth of Chinese imports after consultation period
  • Trump gave Treasury Dept. 60 days to create investment restrictions on Chinese-controlled tech companies
  • Chinese Ministry of Foreign Affairs spokesperson: Will not hide from a trade war when forced to it
  • Chinese ambassador: Will hit back on U.S. tariffs

Major Events/Reports:

Trade war fears return… bigly!

Warning shots were fired in what most market participants fear could turn into an nasty global trade war. U.S. President Trump signed a memorandum that could slap tariffs on $60 billion worth of Chinese goods involved in U.S. intellectual property theft.

The government has yet to publish a list of companies to be penalized, and a consultation period will take place before any actual measures are imposed. Trump also tasked the Treasury Department to develop investment restrictions preventing Chinese companies from acquiring U.S. firms with sensitive technologies (Hubei Xinyan sound familiar?)

Some remain optimistic that the consultation period should give U.S. politicians and businessmen a chance to temper the Donald’s protectionist mood. Trump also mentioned in his announcement:

“We have spoken to China and we are in the middle of negotiations.”

However, the response from China wasn’t all that friendly, as a statement from their embassy warned:

“We urge the US to cease and desist, make cautious decisions, and avoid placing China-U.S. trade relations in danger with the purpose of hurting others that eventually end up hurting itself.”

Not surprisingly, higher-yielding assets took major hits:

  • Dow 30 index slumped to 23,957.89 (-2.93%)
  • S&P 500 index fell 68.24 points to 2,643.69 (-2.52%)
  • Nasdaq tumbled 178.61 points to 7,166.68 (-2.43%)

Bonds prices, on the other hand, scored gains on the flight to safety and caused yields to drop.

Major Market Mover(s):

JPY

The Japanese yen continued its risk-off climb as traders showed hesitation in buying up the safe-haven dollar.

USD/JPY crashed below the 105.50 support to a low of 104.63, EUR/JPY slumped to a low of 128.95, GBP/JPY continued to slide to the 148.00 handle, and AUD/JPY plummeted to a low of 80.98.

Commodity currencies

The comdoll gang sank deep into losing territory as a full-blown trade war would have direct negative consequences on raw material exports.

AUD/USD slipped from .7735 to a low of .7689, NZD/USD dropped from .7246 to a low of .7201, USD/CAD bounced to 1.2918, EUR/AUD surged to 1.6149, and EUR/NZD is back up to 1.7073.

Watch Out For:

  • 11:30 pm GMT: Japanese national core CPI y/y