 The abrupt escalation of US-China trade war overshadowed Fed's rate cut last week. As the trade talks in Shanghai yielded no constructive result, Trump announced to impose 10% on USD 300B in Chinese imports, effective September 1. The list include practically all untaxed Chinese goods, which should have much more direct hit to US consumers. China typically responded with hard-line comments, vowing to fight back with counter-measures. Additionally, trade tensions between Japan and South Korea also intensified, with both countries planning to take each other from the trade whitelist. That's seen as a huge blow to the global tech supply chain. Reactions in the bond markets to the developments were vigorous. Germany's whole yield curve dropped below 0% for the first time ever, including 30-year (then closed at 0.0004). 10-year bund yield hit record low of -0.494 and closed there. US 10-year yield finally took out 2% handle with conviction, and closed at 1.855. In the currency markets, Yen and Swiss France rode on risk aversion and falling treasury yields to closed as the strongest. Dollar was the third strongest, somewhat helped by Fed Chair Jerome Powell. On the other hand, Sterling was the worst performing, on no-deal Brexit dear. Australian and New Zealand Dollar were the next weakest. |
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