Swissquote Bank: Renewed US-China trade tensions

May 4, 2020

Asian equities kicked off the week on a mixed note. China and Japan were closed for holiday, the ASX 200 gained 1.13%, while stocks in Hong Kong lost around 4% on worries that Donald Trump could impose new tariffs on Chinese exports.

While investors are already bombarded with weak economic data and bad corporate results as a result of a strict global economic lockdown due to the coronavirus crisis, throwing renewed trade tensions will only serve to further dash investors’ hopes of a healthy global recovery once the crisis is over.

Donald Trump who had a terrible hit from the stock markets in the run up to this year’s presidential election should find the right balance between blaming China for the virus to convince the crowds to vote for him, and providing a solid basis for the economy to heal.

Meanwhile the factory output in Asia tumbled as a result of halted activity, the PMI data in Europe should confirm the worst contraction on record in April this morning, while the US factory orders due later today are expected to have slumped 9.2%.

On Friday, the US jobs report is expected to reveal an unprecedented plunge in payrolls. The nonfarm payrolls are expected to have fallen by 21 million. The anxiety over the US jobs figures should weigh on the investor mood throughout the week and limit purchases in risk assets.

Hence, investors could quickly forget the generosity of fiscal and monetary packages to throw a floor under the equity sell-off.

With rising tail risks and dashed investor appetite, the US and European equities are poised to open in the negative. FTSE futures slid 0.63%, while DAX futures are down 3.42%.

The S&P500 will likely continue giving back gains toward the 50-day moving average, 2745.

In the currencies market, the demand for safety rises on the mix of coronavirus-hit economic data and renewed US-China trade tensions. The US dollar is better bid in Asia, the yen and Swiss franc are stronger, while gold remains bid below the $1700 per oz.

The EURUSD sees solid resistance near the 100-day moving average (1.0976). The renewed safety inflows to the US dollar could encourage a set back toward the 1.08 mark, the major 38.2% retracement on the latest rebound.

Cable on the other hand slipped below the 1.25 mark on the back of a strong dollar and has potential to extend losses toward the 1.2375 mark, the 50-day moving average, where we expect to see support.

WTI crude is offered near the $20 a barrel, as the renewed US-China trade tensions should cast a shadow on economic recovery moving forward. The price of a barrel could return to the $15/10 area.

Finally, Warren Buffett’s decision to continue sitting on a massive pile of cash and getting rid of airline stocks didn’t help lifting the mood, as more corporate data will throw light on the extent of the economic damages across corporations. And the results may not be as encouraging as last week’s tech giants’.