Analysts at TD Securities explained that market sentiment was weighed down late in the North American session by reports that President Trump could impose tariffs on $200bn of Chinese imports by next week.
Key Quotes:
“Equities sold off on the news (SPX: -0.5%, TSX: -0.2%) while rates rallied on both sides of the border, with Canadian rates modestly outperforming Treasuries on the back of disappointing GDP data.
The pivot towards US/China trade risks saw USDCNH (+0.7%) push higher and weighed on the antipodeans (AUD: -0.6%, NZD: -1.0%) along with a pullback in NZ business confidence. CAD (-0.6%) traded lower on data while JPY (+0.6%) benefited from a risk-off tone in markets.”
“Chinese Manufacturing PMI and trade policy developments will provide the main source of event risk for Friday.”
What We’re Watching in Markets
“FX markets are holding ranges as the market awaits a fresh impetus. The DXY is grinding lower while EURUSD looks supported into the 1.1650 level. There is not much data to nibble for the single currency but Turkey and Italy headlines probably keep the rally in check ahead of 1.18. Peak divergence argues for buying into the dips, however.”
“In EMFX, we are tracking the renewed move higher in USDTRY. August CPI, which is released on 3 September, is the next major event, but the absence of any strategic plan to overhaul the Turkish economy and reassure markets, will, in any event, continue to weigh negatively on TRY sentiment. Risks of global EM spillovers are on the rise.”
“Without much in the way of top-tier North American data, the Treasury market is likely to take its cue from geopolitical risks. As long as trade concerns are front of mind, look for global fixed income to remain well-bid.”
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