Asia equity markets slumped amid strong headwinds from US where the major indices all but wiped out last week’s gains due to fresh trade concerns after President Trump announced to restore tariffs on all steel and aluminium imports from Brazil and Argentina, with increased tensions over France’s digital services tax and dismal ISM Manufacturing data also adding to downbeat tone. ASX 200 (-2.0%) and Nikkei 225 (-0.9%) are lower with underperformance in Australia due to hefty losses across its sectors including financials amid continued Westpac-related woes and with life insurers facing increased capital penalties, while sentiment in Tokyo is dragged by the adverse currency flows. Hang Seng (-0.5%) and Shanghai Comp. (-0.4%) are also weaker on the trade uncertainty with some analysts reading in between the lines of the metal tariff resumption on Brazil and Argentina, suggesting that it could be another front in the trade war following the nations’ recent agricultural deals with China. In addition, China’s retaliation to the Hong Kong bill by sanctioning US non-profit groups and barring US military visits to Hong Kong, as well as expectations for the US House to pass a Xinjiang-related bill further exacerbates the already-opaque trade environment.
In FX markets, the DXY only partially nurses recent losses and languishes below the 98.00 level after it was pressured by weak data including a miss on US ISM Manufacturing data and surprise contraction in Construction Spending, with President Trump’s fresh trade offensive doing little to reverse the USD woes. The greenback’s major counterparts have held on to most their recent gains although EUR/USD has slightly pulled back after the US proposed 100% tariffs on USD 2.4bln of French goods as a response to the digital services tax, and with GBP/USD supressed again by resistance at the 1.2950 level. Elsewhere, USD/JPY briefly slipped to the 108.00 handle on a double-whammy from the weaker USD and safe-haven flows, while NZD/USD remained near a 4-month high and AUD/USD at its best levels in around 2 weeks although stronger than expected Australian Current Account data was largely ignored as participants await today’s RBA rate decision.
Finally, 10yr JGBs are flat and have failed to take advantage of the widespread risk averse tone, as prices remain dejected following the recent bond rout and with participants also kept sidelined ahead of a 10yr JGB auction today.