Webinar: The Trump and Xi show
Join Saxo Bank Head of Forex Strategy John Hardy as he looks ahead to the upcoming G20 meeting between the US and China presidents, as well as general risk conditions and various Brexit scenarios.
Head of FX Strategy, Saxo Bank Group
The comment period for President Trump’s plan to introduce 25% tariffs on $200 billion in Chinese imports expired yesterday, and now we await the details of the implementation plan should Trump proceed, as well as China updating its intentions in a likely symmetric response.
Risk appetite is not taking the situation well, as key Asian indices like the Hang Seng have touched new lows for the cycle over the last couple of sessions and some European indices have done likewise. Our global risk indicator continues to show strain (see below), and as we discussed on the Morning Call, in FX we are noting a strong rise in the premium for JPY puts, with AUDJPY one-year 10-delta puts trading at a 7% premium in implied vol to calls, and USDJPY one-year 10-delta puts at around a 3.7% premium to calls.
The latter is near the levels last seen during the massive risk meltdown in early February of this year and JPY upside is the classic response to global risk aversion, as Japanese savings sloshing around the world try to return to their home base.
Given the backdrop, ad hoc developments from the Trump administration on trade are likely to drive market action more than incoming data like today’s US earnings and payrolls data, as US data has largely been shrugged off this week – including the stellar ISM Manufacturing and ISM non-manufacturing readings.