Aussie Tumbles on COVID Fears Market Rally Stalls

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Chinese fever eases as risk-off flows dominate
Aussie under pressure on COVID fears
Nikkei -0.44%% Dax -1.36%
UST 10Y 0.666
Oil $40/bbl
Gold $1776/oz
BTCUSD $9273

Asia and the EU
No Data

North America Open
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It’s been a generally quiet night of trade in the markets today but with clear risk-off tone in both FX and equities as some of the enthusiasm from the rally in Chinese assets has begun to dissipate.

Chinese equities rallied once again but the move was much muted as the CSI 300 settled only 0.68% up after putting in a torrid rally over the past five days. One reason for the change of tone may be the escalation of hostilities between the US and China with Secretary Pompeo threatening to ban Tik Tok in the US as one form of retaliation against the passage of the security act in Hong Kong.

Up to now, the US has not physically blocked China from its market relying on tariffs instead to restrain imports. If the US follows through on Mr. Pompeo’s threat against Tik Tok, not only will this create a major outcry amongst US consumers where the video app has assumed a preeminent cultural position over the past year, but it will also signal a new escalation of hostilities that could have vast ramifications on global trade.

For now, the markets continue to view Trump administration rhetoric as empty threats but should relations between China and the US deteriorate even further the geopolitical fallout could be the catalyst for another downward move in equities as markets begin to price in yet another supply shock.

In FX, the key story overnight was the Aussie which failed at the .7000 level and tumbled to a low of .6926 as COVID fears gripped the market. Australia has sealed off the border between Victoria and New South Wales for the first time in 100 years as coronavirus cases in Melbourne have officials scrambling to contain the outbreak. There are reports that Victoria Premier is considering a 4-week lockdown which would have massive economic impact on Australia’s second-largest state.

In North America today the calendar is barren and flows will likely be driven by COVID headlines as well as any news of out Washington DC. The COVID data reporting has been delayed by the long holiday weekend so today’s catch up release could show further increase in both new cases and hospitalizations with the later the biggest concern for the markets.

For now, the mild risk-off tone persists in all assets and after a sharp rally over the past several days the market may see a correction move as the day proceeds.

Boris Schlossberg
Managing Director

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