- US equities tumbled on Monday led by technology stocks
- US Treasury Secretary denies stories regarding Chinese investment restrictions
- Risk-off slightly prevails across currencies as JPY catches a bid again
The first trading day this week across equity markets turned out really a grim one as major indices took a hit in the aftermath of a possible further escalation of a trade spat between the US and China. European markets lost over 2% each except for the Spanish IBEX (SPA35) falling 1.8%. Moods on Wall Street got sour as well being led by technology stocks, and as a result the NASDAQ (US100) plunged 2.1%, the SP500 (US500) dropped 1.4% while the Dow Jones (US30) fell 1.3%. Notice that these heavy falls came after the Trump’s administration signalled it has plans to begin restricting Chinese investment in US companies. The story hit the wires over the weekend, hence the first response was seen only yesterday (even eased financial conditions in China did not help stocks recover).
Having said that, US Treasury Secretary Steven Mnuchin tweeted on Monday and denied all stories concerning investment restriction on China provided by Bloomberg as well as Wall Street Journal calling them ’fake news’. However, market participants took his tweet with a grain of salt keep selling off riskier assets. On the other hand, Mnuchin basically did not rule out investment restrictions at all instead he decided to single out just the Chinese economy. It may also mean that investment restrictions will be implemented to all countries the US thinks they steal its technology and therefore investors took Mnuchin’s words with caution.
US100 marked its worst session since April touching a pivotal technical level at 7000 points. Nonetheless the price keeps on trading relatively far away from its two moving averages, and on that account one cannot rule out a deeper reversal. After breaking 7000 points bulls may look at 6860 points at their subsequent possible turning point. Source: xStation5
On the currency front a slightly risk-off mode is still seen as the Japanese currency is catching a bid, but its strength is much lesser than it was yesterday. The US10Y yield continues trading below 2.9% suggesting a demand on US bonds remain quite high. On the other hand, the US dollar is subtly underperforming in the morning being the worst currency in the G10 basket (NZD virtually sees the same loss). Writing about the NZ dollar one needs to mention overnight remarks delivered by the RBNZ pointing that the currency remains at an elevated level. Looking at the chart below it does not seem the NZD might be trading at ’elevated levels’ albeit these words might be critical as they come just a while before the RBNZ meeting (this Wednesday).