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The global risk mood was strong out of the US Independence Day holiday, with 4 consecutive daily gains in the S&P 500 by Tuesday’s close, but shortly afterwards, AUD/JPY and S&P 500 futures tumbled as Bloomberg reported that the US would soon announce the list of $200bn of imported Chinese goods that could be subjected to a 10% tariff, notes Sean Callow, Research Analyst at Westpac.

Key Quotes

“Perhaps the fixation on last week’s first tranche of US tariffs on Chinese imports left some investors pursuing the bullish view that the tariff threat could now be largely ignored. The bulls might find some relief near term at least on the US-China front, with public comment invited on the $200bn proposal extending to late August.”

“Since these tariffs will not take effect until after that date – and there will be lingering hope for a compromise in the meantime – the market tension over trade could ease. Chinese officials have expressed their anger and pledged retaliation, but with annual goods imports from the US only about $160bn, it cannot be strictly reciprocal, unlike the response to the 25% tariffs on the first $50bn.”

“So perhaps there is scope for a more upbeat mood to return in the week ahead. We will see if this is sufficient for AUD/USD to avoid 18 month lows under 0.73. US dollar strength has been broad-based, with yield support resilient.”