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The tit-for-tat trade war continues with China and the US spilling over into the rest of the world with JPY, CHF and the USD FX winners and everyone else losing.The spill-over moment isn't joy for the 1% today, its not a champagne moment but bath-tub gin we are drinking. Trump orders USTR to identify another $200bn in China goods for 10% tariffs. China vows to take counter measures. The US Senate yesterday took away the ZTE deal as well. The messiness of global trade disruption and what it means for growth starts with the fear that higher prices on imported Chinese goods will force the FOMC to hike rates faster in the US. It continues with the pressure on China to let its FX rate wobble and to ease policy faster. While those fears aren’t immediate, they flow that way with CNY at 5-month lows, USD up to new yearly highs. The hit to confidence leads today with equities taking the first splash. The second splash-back is from doubts that central bankers can fix trade spats.
The ECB Sintra conference offers little comfort. ECB Draghi said they would take gradual approach to adjusting policy after patient wait for first rate hike, still planned for summer 2019. There wasn’t enough economic data overnight to change any mood or focus – leaving politics and central bankers as the keys for mayhem and volatility. This is the spill-over effect from years of steady hands pushing asset inflation through easy money. The glass has not just cracked but spilled as populist movements and cracks in globalization follow. While the focus overnight was on the JPY moves, the breaks in GBP maybe the most obvious signal for trouble continuing beyond today with the Brexit votes and Bank of England decisions likely adding to the trade spill over mess today. GBP is in a downtrend and the target of 1.25 seems more likely than a return to 1.37 and the uptrend.
The Morning Track spill-overs
- The Morning Track – Spill-Overs by Bob Savagehttp://trackresearch.com/articles/the-morning-track-spill-overs/
The tit-for-tat trade war continues with China and the US spilling over into the rest of the world with JPY, CHF and the USD FX winners and everyone else losing.The spill-over moment isn't joy for the 1% today, its not a champagne moment but bath-tub gin we are drinking. Trump orders USTR to identify another $200bn in China goods for 10% tariffs. China vows to take counter measures. The US Senate yesterday took away the ZTE deal as well. The messiness of global trade disruption and what it means for growth starts with the fear that higher prices on imported Chinese goods will force the FOMC to hike rates faster in the US. It continues with the pressure on China to let its FX rate wobble and to ease policy faster. While those fears aren’t immediate, they flow that way with CNY at 5-month lows, USD up to new yearly highs. The hit to confidence leads today with equities taking the first splash. The second splash-back is from doubts that central bankers can fix trade spats.
The ECB Sintra conference offers little comfort. ECB Draghi said they would take gradual approach to adjusting policy after patient wait for first rate hike, still planned for summer 2019. There wasn’t enough economic data overnight to change any mood or focus – leaving politics and central bankers as the keys for mayhem and volatility. This is the spill-over effect from years of steady hands pushing asset inflation through easy money. The glass has not just cracked but spilled as populist movements and cracks in globalization follow. While the focus overnight was on the JPY moves, the breaks in GBP maybe the most obvious signal for trouble continuing beyond today with the Brexit votes and Bank of England decisions likely adding to the trade spill over mess today. GBP is in a downtrend and the target of 1.25 seems more likely than a return to 1.37 and the uptrend.
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Robert Savage
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