China Slaps Tariffs; Dollar Dives

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Market Drivers April 4, 2018
Dollar drops on news of China retaliatory tariffs
EZ CPI 1.4% Core 1.0%
Nikkei 0.13% Dax -1.05%
Oil $62/bbl
Gold $1342/oz.
Bitcoin $7300

Europe and Asia:
GBP UK PMI Construction 47 vs. 50.1
EUR CPI 1% vs. 1%

North America:
USD ADP 8:15
USD ISM Non- Manufacturing 10:00

China responded to US tariff moves today with trade sanctions of its own levying tariffs on more than $50 billion dollars worth of goods and services, sending dollar lower in early London dealing as USDJPY touched 106.00 while EURUSD rose to 1.2300.

The Chinese move, as many analysts noted, was proportionate, immediate and highly political in nature targeting soybeans, industrial goods and other industries that are sure to cause Mr. Trump difficulties with his base in the midwest.

Despite the swift response Chinese officials tried to strike a conciliatory tone, emphasizing that they were not interested in a trade war and were looking for a negotiated solution. Still the Chinese made a not so veiled threat about international capital markets – a more than obvious hint that China holds more than $1 Trillion of US debt and therefore could wield considerable power in that arena.

One of the unintended consequences of the recent actions is that current wave of risk aversion has created a flight to safety move into US bonds, thus allowing China to liquidate its position in US treasuries with minimum slippage.

On the more immediate front, the response against industrial goods is sure to hurt Boeing which is a massive component of Dow and could therefore cause a deep gap lower on the open which could bring a fresh wave of risk aversion to the market.

The political news has overshadowed the economic calendar today, but traders will still focus on ADP and US ISM Non-Manufacturing data due later today and any positive surprise could ameliorate today’s sour mood. On the other hand, if the labor data shows an unexpected slowdown in job growth it could be the catalyst for much broader selloff during the day and could take USDJPY towards 105.50 as longs capitulate completely.

Boris Schlossberg
Managing Director

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