Last week was all about US-China trade talks, and underperforming stock markets (S&P500 -2.18%, HangSeng -5.09%), lower USDJPY (-81 pips), and lower oil futures (-59 pts) were all telling about the progress of the talk.
Trump was really the one person who sent jittering messages to both financial markets and main streets. By moving the import tariff to 25 percent, Trump probably meant this for early offensive moves to gain an edge during the talk, but alas, China is not the one that can be threatened with trade threats given that China has now both strong manufacturing and consuming capacity.
On Saturday, the trade talks end without a deal and we will likely see some sour sentiment price actions at the beginning of next week. For fast money speculators, it’s probably a good time to take a stock long position off the table and stand on the sideline, or if reallocating position into a more defensive such consumer staple (sector with smallest lost last week) or health care such Merck, Pfizer, Johnson & Johnson, etc, for those who still need their money to be invested.
In the currency world, selling USDJPY on rebounce is probably a safer strategy to run, and we don’t like to belong AUDUSD for the time being. We saw a blow-up in USD/Asia currencies, due to hedging and EM stock outflow, with extreme moves in USDKRW (aggravated further by N. Korea missile tests) and USD IDR (weak bond auction). But not all EM countries are equal, and in some conditions, market positioning is even more important and can defy the gravity of market sentiment, for example, Baht (THB) has one of the strongest moves arguably due to positioning and onshore demand.
US-China trade talk saga will still dominate the market sentiment for next week – on macro headlines, we will have US Retail Sales which is supposed to give more indication whether the lower inflation data is simply a transitionary effect or it gives a more sinister sign of possible recession in the coming years (which can definitely happen if US-China really goes into a trade war).
