Trade war escalates as Trump orders to identify new goods to hit China

Summary:

• Donald Trump seeks to impose new tariffs on Chinese goods once the country retaliates again
• Japanese yen quickly higher on further trade war escalation, former BoJ member advises the board to scrap the inflation target
• Chinese stocks plummet, US yields move down on a safe haven flow
• RBA minutes offer little new to digest for traders, Aussie lower but not by this

It looks like an end of trade tensions between the US and China has just become more distant after the latest statement released by the White House. President Donald Trump has ordered to identify up to $200 billion Chinese goods for which new levies might be put should China "refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced". A new tariff rate would be 10%, and it appears it can be introduced if the second largest economy in the world keeps working on further $16 billion tariffs being set aside thus far (notice that China has so far decided to slap the US with $34 billion levies coming into effect on 6 July). As of yet no new details have been published, but a markets’ response has been quite noticeable. The largest move has been noticed in the AUDJPY cross as the pair tends to reflect prevailing market participants’ sentiment, which has gotten sour.

Technically speaking the AUDJPY has already touched a support placed at 81, and if it fails sellers might be able to push the price toward 80.50. Source: xStation5

Writing about the Japanese currency one needs to mention an uncommon remark from a former Bank of Japan member Watanabe. He offered us a sobering comment when it comes to BoJ’s monetary policy claiming the bank should scrap its efforts to stimulate prices through large-scale bond buying and instead introduce a digital currency, enabling it to accept a new price goal of zero percent inflation. Watanabe also admitted that the last five years have confirmed that BoJ’s policy has not had any effects on prices. These are peculiar commentaries, but there could be a grain of truth given how far the BoJ is from its objective. Looking elsewhere, Asian stock markets have taken a hit as well with Chinese benchmarks losing as much as 3% after a holiday on Monday. The Japanese NIKKEI (JAP225) is slipping 1.45% as of 6:42 am BST, while the SP500 future are trading 0.9% lower. Do notice that a safe haven flow has been experienced in the US bond market as well as the yield on US10Y Treasuries has moved down 6bps to 2.87% over the recent hours.

The China’s CHNComp has plummeted as trade tensions continue mounting. The closest support line might be localize at around 11400 points followed by 11100 points. Source: xStation5

In turn, the sole point being worth mentioning from the Asian session were minutes of the Reserve Bank of Australia coming from its June’s meeting. As usual there was nothing new what we had not known shortly after the meeting earlier this month, on balance, the document might be classified even as a bit dovish one as the RBA omitted a reference that the next cash rate move is likely to be up than down. Members more or less agreed that a 3.5% increase of minimum wage is likely to boost overall wage growth in the third quarter, but growth in general stays low and stable. In terms of the outlook for trade the minutes underlined that further tariffs measures are a downside risk to the global outlook.

The Australian dollar keeps falling, but the move is more likely to be driven by a risk-off mode rather than the RBA minutes. Technically the pair is getting closer to its relevant demand area from where a rebound might be expected. Source: xStation5