. Markets in Asia were down today as investor fears about the rising tensions between the US and China, after the former ordered the closure of China's consulate in Houston, were enough to overcome hopes for more stimulus.
. MSCI Asia-Pacific (ex. Japan) was down 0.3%, driven by a 1.67% drop in Shanghai, while the ASX and Hang Seng were flat. Similarly, the Nikkei was down 0.13%, while S&P E-mini futures were up 0.28%.
. Upon the closing of the Houston consulate, China said this was an "unprecedented escalation", with Reuters reporting that Beijing was considering shutting the US consulate in Wuhan in retaliation. US President Donald Trump did not miss a chance to warn for more, saying that other consulate closures were "always possible".
. Analysts note that further escalation of the tensions are increasingly likely, with their biggest risk being that Trump will break the Phase One deal.
. Still, markets could continue to be supported by an increase in stimulus measures which could continue to provide demand for riskier assets as the search for yield continues. The liquidity that has been provided in the market is "just unparalleled" as analysts note, going another step by saying that the current situation resembles what happened after the 2008 crisis, but on steroids.
. The current situation is one of those rare occurrences that both monetary and fiscal policy are aligned and at full speed. Furthermore, the sheer length of time that both engines of government-led growth have been running is again unprecedented. What is more, markets still believe that more stimulus is to come.
. This was evident in the market behaviour yesterday: hopes for more stimulus along with strong corporate earnings boosted Wall Street, with all major indices rising, even though Republicans and Democrats still remain divided as regards to the size of the next round of coronavirus relief.
. In the commodity markets, spot Gold was down to $1,865.84 at per ounce, but remained close to its nine-year peak reached this week. Gold prices are up nearly 23% on the year, as investors have shifted to the traditional safe haven metal, in order to hedge from a potential negative movement in US equities.
. In the currency markets, the Dollar remained on the weak side, near a four-month low. The greenback was flat against the yen at 107.14 and against the euro at $1.1568.
. Oil prices were also unchanged, with WTI standing at $41.90 per barrel and Brent at $44.30 per barrel, despite a worsening in oil inventories which rose by 4.9 million versus a forecast of 2.1 million.
. Earlier today, Korea's GDP in the second quarter was down 2.9%y/y, despite the improvement in Asia over the second quarter of the year. At the same time, German consumer climate continued to be negative, but only marginally, at -0.3 versus expectations of -5.
Up and Coming
. Major news today are the jobless claims in the US which are expected to continue as they were, with initial claims forecast to have remained at 1.3 million, while continuing claims are forecast to have declined to 17 million versus 17.3 million in the previous week. The forecast appears rather optimistic to the Wolf, given the huge increase in coronavirus cases over the previous week.
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