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Analysts at Westpac explained that risk sentiment deteriorated in London/NY trade, with equity markets heavy as the US-China war of words on trade policy continued.

Key Quotes:

“Global equity markets reeled as the US-China trade war deepened. Chinese President Xi was reported as saying China will “punch back”. US Treasury Secretary Mnuchin and trade advisor Navarro tried to play down market fears but seemingly to little effect. Harley-Davidson said it would move some motorcycle production from the US to other facilities in order to avoid the EU tariffs which were imposed in response to the US’s steel and aluminium tariffs.”  

“Outperformer EUR rose 0.5 cent to 1.1705/10, and was the main beneficiary of US dollar weakness. GBP/USD was choppy but overall a touch higher, around 1.3280. USD/JPY probed two-week lows at 109.37 but trimmed losses to 109.75 into early Sydney trade.”

“Underperformer AUD fell from 0.7440 to 0.7397, then edged back to 0.7410. NZD fell from 0.6920 to 0.6885. AUD/NZD fell from 1.0770 to 1.0732. CAD softened a little as oil prices fell.”

“The Turkish lira’s initial post-election rally fizzled out, USD/TRY closing Monday about flat, leaving  the lira -19% year to date. Turkish equities also closed lower amid general equity weakness.”  

“The US 10yr treasury yield eked a lower range of 2.86% and 2.90%, as did 2yr yields between 2.52% and 2.55%. Fed fund futures yields continued to price 1 ½ more hikes in 2018.”

“There was a sharp 6.7% gain (vs 0.8% expected) in US new home sales in May, higher mortgage rates and less favourable tax treatment for housing seemingly not holding back sales. A downward revision to the prior month and a narrow geographic concentration to the gain (gains were all from the south, other regions were all weaker) detracted from the headline.

German June IFO business survey showed, as expected, a minor slip in its overall climate (101.8 from a revised 102.3), driven by a lower (105.1 from 106.1) current assessment. The expectations component remained unchanged (98.6, expected 98.0) but the overall impression is of consolidation after recent weakness at levels which imply a generally lower level of activity for 2018.”