(Bloomberg) -Pho who lived with the risk of US trade war, the financial markets re-opened on Monday, which had to deal with reality.
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Investors preferred the US dollar in early trading with Asia and can avoid shares after President Donald Trump has made his threat to impose general fees of 25% per Canada and Mexico and 10% on Chinese goods that start on Tuesday obligations from retaliation from other governments.
The US currency proceeded against most of its main peers, while the Canadian dollar weakened to touch the lowest since 2003. Mexico Peso dropped by more than 2%, while the Australian dollar sensitive to the risk that was considered a particularly exposed threat of American tariffs against China about 1%. Yuan weakened around 0.5% coast.
Talking about tariffs in itself benefited the Greenback from Trump's elections. Last week it was his best since mid -November, with the Bloomberg Dollar index of almost 1%. American shares fell on Friday with car manufacturers and companies exhibited by China. Bond traders have to decide whether to focus on increased risk on markets or inflation.
“Commercial tension can escalate in the short term because other countries are politically obliged to retaliate or imitate American politicians,” Stephen said only, the CEO of Eurizon SLJ Capital. “This should support more dollar strength and higher US revenues for a shorter period.”
Behind the bull position of the dollar is a bet that tariffs will support inflationary pressures and maintain us increased interest rates, and at the same time it hurts more than the US and adds to the safe bait of the greenback. Foreign currencies are injured because American demand decreases for more expensive imports.
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“While President Trump's statement suggests that the dollar is too strong, could have an impact on the financial markets, the overall outlook remains unchanged– tariffs and domestic inflation pressures are likely to maintain the basic trend of dollar appreciation,” said Shoki Omori, the main global table strategist In Mizuho Securities in Tokyo.
“We expect the sale of pressure to hit Peso and the Canadian dollar for tomorrow Asia Open, but it is difficult to assess how serious the move will be,” said Karl Schamotta, the main market strategist in Corpay in Toronto. “Financial markets may undergo a painful adaptation process in the coming weeks, as participants are starting to take the President seriously and literally.”
Marco Oviedo, a strategist in XP Investimentos in Sao Paul, said tariffs are “clearly contrapired” for Mexico. With vague, over-board tariffs, Peso should be at 23 per dollar, said Olga Yangol, head of developing market survey and strategy in Credit Agricole. It is deep below 20.67 per dollar, Peso was the last trading on Friday.
Pure short positions at the Australian dollar worth $ 4.5 billion are now the highest in nearly ten years. Trump also threatened the European Union, which could leave the euro undercut, and, according to Mizu EME, potentially achieve parity with the dollar already in March.
“Navigation on the currency markets is now feeling like trying to interpret the theory of chaos in real time,” Tifo Toune of the Conyers Trust in Bermuda said. “With the current increase in geopolitical tensions, the unpredictability of politics and the divergence trajectory of economic recovery, it is no surprise that the FX markets behave with increased sensitivity.”
Whiplash
Traders are on the standby for large swings on stock markets in the sectors, which are considered to be the front lines of any trade wars. The UBS Group Ag Košík at the risk of the proposed tariffs dropped almost 4% on Friday for concerns that would intervene and hit the lower lines.
Car cars such as General Motors Co. And Stellantis NV, who have global supply chains and massive exposure to Mexico and Canada, could see significant movements. Manufacturers of electric vehicles Tesla Inc. and Rivian Automotive Inc. They can also feel a pinch. The mention of the word “tariffs” is already growing on earnings.
The NASDAQ Golden Dragon China, which consists of companies that is in China, but trades in the US, dropped by 3.5%on Friday.
“Regardless of the negotiations, higher tariffs and retaliation are on the horizon,” said Prashant Newnaha, TD Securities strategist in Singapore. “Headaches with a supplier chain are back and higher costs and higher prices attract.”
… the dollar is still supported by the impressive base of the supporting placement. Non -commercial traders continue to hold the net positions of $ 33.7 million. Hedge funds also hold pure longs on the greenback, according to shops. These investors are likely to let these positions ride until retaliatory measures are announced. ”
– Alyce Andres, American Rates/FX strategist, markets live
While Trump said last week that he was not marked on the reaction of markets to his business policy, Ed al-Hussainia, the strategist of the Columbia Threadneedle Investment rates, he said that the president has now “embarked on the most risky tariff strategy with high probability of retaliation. ”
“I expect tightening financial conditions,” he said. “Think about drawing shares, wider credit range.”
The treasures were able to end the profit in the middle of the inflation of colder inflation at the beginning of the year. However, fixed income merchants will now have to reduce immigration and easier fiscal policy in the markets against inflation consequences of tariffs and Trump's distortion.
The Bloomberg US Treasury Treasury Index increased by 0.5%per year. “If there is a sale in shares, I expect investors to flock to bond security,” said Subadra Rajappa, head of the US Rate Strategy in Societe General. “The inflation impact of higher tariffs could lead to higher expectations of inflation and more flattering curves.”
The fixed income market faces some other challenges in the coming days. Work and inflation data is coming, helping to shape the expectations of the Federal Reserve System after politicians have suspend their relaxing cycle last week and signaled that they are rushing again. Also ahead of us is the first notification of the return of the Treasury under President Trump on Wednesday.
“Higher yields, lower risk.” In our opinion, it would be a “mistake” to join any perspective, so higher volatility, “said Gregory Farenello, US trade head and US securities strategy. “It will certainly be a jerky rate. You name it, it's on the table right now. And the Fed is not in any hurry to do anything. ”
-S using Maria Elena Vizcaino, Michael O'Boyle, Esha dey, Michael G. Wilson, Matthew Burgess and Nicolle Yapur.
