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  • Trade tensions  proved too much for global markets this week, and more tariffs are the last thing traders want.
  • Wednesday brings a trio of central bank speeches; diverging  policy statements could knock some havoc into markets.

Tariffs rough up global markets

Risk aversion  became the name of the game once again for Tuesday, with risk assets across the board declining against the Japanese Yen and the US Dollar as broader markets reconsidered their risk appetite in the face of a possible trade war between the US and China, which took a step closer to becoming a reality  yesterday as the US President, Donald Trump,   seeks another set of tariffs on $200 billion worth of Chinese goods, a move that was promised alongside the initial $50 billion in tariffs if China were to retaliate. China retaliated with their own tariffs for $34 billion, and now the US is seeking to impose further tariffs in a direct ramp-up of trade tensions.

The US Senate has been making moves recently to prepare a bill that would allow them to block the White House’s ability to impose tariffs on national security grounds, and Trump met with Republican leaders late Tuesday, asking the Senate majority leadership to give him leeway to engage in trade negotiations “his way”, effectively asking the government majority party to stand back and let him use potentially self-harming tariff tactics as a bargaining chip.

Dollar, Yen the big winners as broader currencies lose out

The Euro, the Sterling, the Aussie, and the Kiwi all declined against the USD on Tuesday, with the Euro and the Kiwi threatening to set new lows for 2018, while the GBP and the AUD both knocked into levels that haven’t been seen since 2017. Major pairs have rebounded slightly since bottoming out in Tuesday’s US session, but market sentiment remains sluggish and unlikely to recover without some kind of inspiration.

Central bank triple-threat for Wednesday

Wednesday sees a trio of speeches from three central bank leaders, the European Central Bank (ECB), the US Federal Reserve, and the Reserve Bank of Australia (RBA), all scheduled at 13:30 GMT. The ECB has had a dovish turn lately, while the RBA has been dovish for a while amidst a faltering Australian economic recovery that is looking more and more like a stall; the Fed, headed up by Jerome Powell, is the only bullish central banking institution out of the majors, and his next talking points will be watched carefully as traders still anticipate two more rate hikes this year.