US shares slumped before the weekend amid concern that the Trump Administration was prepared to escalate the trade tensions with China. However, cooler heads are prevailing, and there is a recognition that the conflict is still in the posturing phase. No sanctions have gone to into effect. As the Economist points out, nearly 100 of the Chinese products the US proposed slap a tariff on are not currently being exported to the US. The US has a 60-day public comment period, and China has not given a date for implementations, but will take its cues from the US.
The MSCI Asia Pacific Index rose 0.55%, its biggest gain and highest close in nearly two weeks. All the markets in the region rose. Hong Kong’s Hang Seng’s 1.3% advance led the regions, and after it was the index of H-shares that trade in Hong Kong (China Enterprise Index), which was up 0.9%. The Nikkei gained of 0.5% and posted its highest closed since mid-March.
Europe is following suit. The Dow Jones Stoxx 600 is up 0.5% near midday and it is seeing its best levels since March 19. Financials, information technology, and industrials are leading the way higher, and only the energy sector is struggling.
Commodities are also rebounding from their worst drop in a few weeks. Oil and industrial metals are higher, with copper at three-month highs. Oil is trading about 0.5% higher after falling around 4.5% last week.
While benchmark 10-year yields are mostly 1-2 bp higher, the US dollar is little changed. The yen and Swiss franc are a touch softer, while the euro and sterling are straddling unchanged levels. The Canadian and Australian dollar are slightly weaker, while the Scandis are firm. The only significant option of note that is expiring today is a nearly $850 strike at JPY107.00.
The New Zealand dollar is the strongest of the majors, gaining almost 0.5% to recoup what is lost in the past two sessions. The Kiwi is perceived to be less exposed to the trade-tension story due to is export product mixed (agriculture primarily). The Australian dollar is trading at its lowest level against the New Zealand dollar since last July, falling for its fifth consecutive session. The technical indicators are getting stretched.