Well, even before the official answer from China regarding Trump´s latest batch of tariffs over $300 billion of Chinese imported products to the U.S, there were clear signs that Xi Jinping wasn´t going to back down but would rather take off the gloves and call Trump´s hand.
The fact that the Yuan fell below the 7 mark against the U.S dollar is a major play, means that China is not only not defending its currency (allowing it to devaluate and effectively easing the higher costs from the tariffs); but also it opens the door for Trump to upgrade his rhetoric, not only in the trade war, accusing its Asian counterpart of currency manipulation, but also sending another message to the FED, for the Central Bank to act accordingly. In another words cut interest rates, in order to lower the value of the greenback.
Photo by Eric Prouzet.
On another front, Bloomberg News reported that “the Chinese government has asked its state-owned enterprises to suspend purchases of U.S. agricultural products“, after official sources rebuffed Trumps accusation of China failing to buy the agreed amount of agricultural products from the U.S.
As a result of the escalation of the trade conflict investors turned once more their backs on risk taking and adopted a safe haven strategy. No S&P500 sector is green so far, with Gold and the Yen are having a nice run. Be careful the next few days when trading with leverage, the holiday season is quite prone to sudden spikes in volatility.
