China Threatens Retaliation as Talks Start

All eyes turn to Washington Thursday as both sides sent messages ahead of crucial trade talks. The yen and franc are the top performers while the Aussie and pound lag. US PPI, jobless claims and trade balance data are due momentarily. The Video for Premium subscribers titled "Executing Intermarket Trades" is found here.

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Markets settled in for US-China trade talks with only modest moves outside of GBP and NZD on Wednesday. The kiwi fell after the RBNZ cut rates but managed to pare much of the loss throughout the day, in part because Orr called it a pre-emptive move and didn't offer a signal about cutting further.

Looking ahead, the US March trade balance report is due at 1230 GMT. The consensus is for a $50 billion monthly deficit. Because of the advanced figures, large misses are rare but not impossible. A negative scenario would be a deficit of more than $60 billion, which would make it the largest on record. That headline would come at the worst possible time with the Chinese delegation arriving in Washington for trade talks shortly afterwards.

Any news from those talks will dominate trading on Thursday and Friday. After Tuesday's worries, the market calmed and is still likely only pricing in a small chance of a breakdown. If talks go badly, it could be a rough ride for risk trades with the relevant levels mentioned here. Even if there are no signs of progress into the weekend, market participants will likely play it safe to avoid the risk of another gap at the open. Watch the 2855 closing level on the S&P500. 

In the hours before the talks, Trump sent out a tweet indicating that China is coming “to make a deal.” That helped to improve sentiment. Meanwhile, China said it was prepared to retaliate against the latest round of US tariffs, which are set to go into effect on Friday.