- Trump threatens to “cut off” relations with China as row over virus spread escalates
- But market declines are limited as hopes of improvement and more stimulus prevail
- The dollar was heading for weekly gains, eyeing US retail sales
Trump continues the attack on China
President Trump increased his harsh criticism of China as he continued to blame the country for not stopping the spread of coronavirus. In a talk with Fox Business Network on Thursday, Trump questioned future trade relations with China, saying the recently signed Phase 1 deal “doesn’t feel the same to me” until he added “right now I don’t want to talk to him about President Xi.
The Trump administration is reportedly looking at ways it could penalize China, such as forcing Chinese companies listed on US stock exchanges to follow U.S. accounting rules. But Trump went so far as to say “We could cut off the whole relationship” and cemented fears that China will become the main battlefield in the 2020 presidential race.
Although the shock waves of Trump’s intensifying anti-China rhetoric were clearly felt in the markets, they did not produce shivers on the scale seen during the 2018-19 trade war. This may suggest investors are not convinced that Trump will follow up on his words of action as it would hurt the US economy at a time when companies are still counting the cost of the virus impact.
In a reminder of the deteriorating financial situation, weekly unemployment claims rose another 2.98 million yesterday, slightly down this week, but above expectations to 2.5 million, indicating that high-paying layoffs remain alarmingly high across the United States. Yesterday’s figures count the number of US job losses due to the staggering 36 million virus crisis.
Stocks pull off the viral darkness, hoping for improvement
The development of US-China relations has lifted the gold with a safe haven that is fast approaching its 7-year high in April. Fed Chair Powell’s bleak outlook on the US economy has also backed the precious metal this week. But another reason to drive gold up in recent days is the prospect of more monetary and fiscal stimulus.
Equities have not missed the boost from stimulus expectations either, as the plethora of liquidity flooding the markets has once again broken the traditionally negative equities-gold ratio.
But are traders once again ready for disappointment? While further action by the Fed is guaranteed if the US economy suffers from a recession, the possibility of further fiscal stimulus looks less certain.
Party politics is holding Congress to approve another massive virus relief package after Republicans rejected the $ 3 trillion plan presented by Democrats. But markets seem to think it’s only a matter of time before the two sides reach an agreement, especially as the president appears to be in for a more stimulus.
Investors are also still optimistic that there will be an improvement in the second half, although the United States appears to be most prone to another wave of infections, after easing the restrictions on closure prematurely. But for now, it seems optimists weigh heavier than the bleak spreaders, and Wall Street posted a sharp turnaround shortly after opening on Thursday to close more than 1% higher.
This helped Asia close for the most part higher, and shares in Europe have opened in a positive direction.
The dollar is easier, but up a week
On the FX sphere, the mood was less sung as the week’s beaten currencies such as the pound and the Australian and New Zealand dollars sustained a downward bias and remained stable at best. There was some support for the Aussie following a better-than-expected rise in Chinese industrial output in April, while higher oil prices helped the Canadian dollar rebound against the C $ 1.40 mark.
Oil prices have risen this week amid signs that supply may be easing. But retail sales from the United States later today may encourage investors not to bet on strong demand in the current climate.
The increased risks to prospects pushed the safe haven yen and the Swiss franc up on Friday, although the US dollar was a little softer against a basket of currencies after touching on the 3-week highs yesterday. The euro, meanwhile, was mixed as it slipped to the 5-year low versus the franc on expectations that the European Central Bank will pump more stimulus in the coming months.