200 Billion Reasons for Worry

The market took a surprisingly sanguine view to a report that Trump is eager to hit China with $200 billion in additional tariffs. The yen was the top performer while the New Zealand dollar lagged. USD/CNH remains in a descending trendline resistance with 6.90 becoming the next barrier, while USDX monthly candle suggesting a gravestone doji on this final day of the month.  The FTSE Premium short was closed for 160 pts gain. Below is a detailed video on existing and future trades for Premium subscribers.

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A review of $200 billion of proposed 25% tariffs on virtually everything the US imports from China is underway and scheduled to wrap up on September 6. That same day, Trump wants to announce them, with implementation a short time after, according to a Bloomberg report. The headlines sent the US dollar lower against the yen and weakened risk assets but only modestly USD/JPY dipped to 111.00 from 111.20. The S&P 500 finished down 13 points.

The market is either stuck in sleepy summer mode or believes this is yet-another negotiating tactic. The report cited six sources, which makes it almost certain that it's a deliberate leak, likely with the aim of winning Chinese concessions. It's entirely unclear if that's coming. Unlike NAFTA, Trump's cabinet appears to be united in its determination to drive a hard bargain and the apparent success of bullying tactics with Canada and Mexico will further embolden them.

What was also notable was the asymmetry of the market reaction. As with other US-China flare ups, it hasn't been a classic flight-to-safety. The US dollar slid against the euro and made only modest gains against the commodity currencies. For Canada, in particular, a US-China trade war may prove to be an opportunity to increase exports to both nations as they refuse to trade with each other.