US weighs up scrapping China tariffs, RBA likely to make a record hike, Euro faces more selling US weighs up scrapping China tariffs, RBA likely to make a record hike, Euro faces more selling US weighs up scrapping China tariffs, RBA likely to make a record hike, Euro faces more selling

US weighs up scrapping China tariffs, RBA likely to make a record hike, Euro faces more selling

Equities 4 minutes to read
APAC Research

Summary:  APAC market sentiment boosts as the US is potentially scrapping China tariffs in bid to decrease inflationary woes. Gas and oil prices set fresh highs, boosting energy stocks again. Coal futures show no signs of slowing down, jet packing coal stocks off their lows. The RBA rate decision today will likely spook ASX rate sensitive sectors and pump life into AUD. We map out a checklist of why the RBA will be forced to be more hawkish than expected, and think rates could rise by 0.75% today. Japan's real cash earnings fall, justifying the BOJs accommodative policy and complete divergence to the world. Plus why the Euro could get lower against the USD

What's happening in markets? 


APAC equities push up as risk sentiment improves with China tariffs being potentially scrapped

While APAC markets had no US markets leads to follow (they were closed for US independence day holiday) APAC markets took their leads from Europe’s Stoxx 50 rising, buoyed by gains in energy stocks after the Oil WTI price rose 2.5%. and European Gas prices rose to a 4-month high.  That saw TotalEnergies (TTE), and Eni SPA (ENI IM) rise 4.6% and 2.4% respectively, leading other energy and commodity names higher.  The second reason APC sentiment is upbeat today is that President Biden focused on the inflation agenda ahead of the midterms, and now discussing potentially scrapping some China tariffs in a bide to cool inflation woes. Despite any detailed plans markets reacted positively. Also helping was that China’s improved services PMI print boosted sentiment, taking the focus away from recession concerns for now. Australia’s ASX200 (ASXSP200.1) trades 0.13% higher,  Japan’s Nikkei (NI225.I) was nearly 1% as semiconductor stocks were pushed higher on tariffs news. Singapore’s STI (ES3) was however still in red, down about 0.25%.

Chinese equities bounce on the prospect of easing on US tariffs and better than expected Caixin Service PMI

Stocks traded on the Hong Kong and mainland China bourses got a lift form the WSJ report on President Biden’s inclination to reach a decision to relax some tariff on goods form China as early as this week.   inclining to come to a decision to ease tariffs on goods from China set a positive tone before HK/China open.  It was also reported that China’s Vice Premier Liu He had a video call conversation with U.S. Treasury Secretary Janet Yellen on the global economy, global supply chains and U.S. tariff on Chinese goods.  Helping the sentiment further, Caixin Services PMI, came at a much better than expected reading of 54.5 for June (vs Bloomberg consensus: 49.6; May: 41.4), returning to expansionary territory.  The risk of resurgence of Covid-19 cases however continued to hang over sentiment.  For July 4, 335 cases of locally transmitted cases were reported in mainland China.  Hang Seng Index (HSI.I) was up as nearly 1% and CSI300 (000300.I) gained modestly as of writing.

Crude oil gains reflect the energy market fundamentals

The energy market has been relatively stable despite the buildup of recession fears, highlighting the true state of supply shortages which cannot be offset by possible demand destruction. WTI crude is back above $110/barrel, up over 2.5% in Asia amid an improved risk sentiment, and Brent crude is up at $114/barrel. While near-term pressures are still likely as markets fear a recession, but tight supplies will likely keep prices pressured higher in the medium term.

AUDUSD continues to move up off 2-year lows ahead of RBA rate hike; which could be a 0.75% hike, the biggest rise since 1994

The commodity currency AUD is rising 0.3% today ahead of the RBA’s decision with a 0.5% rate hike widely expected. Our view is the rates could rise by 0.75%, which will mark the biggest hike since 1994, and take the cash rate to 1.6% in an attempt to curb inflation and cool growth. We know higher food, fuel and utility prices are likely to continue to swell and wage growth is expected to mount. What’s next for AUDUSD? If the RBA hikes by more than 0.5% the AUD could rally up from 0.6888 US, (its two day high), to the next level of resistance 0.69687. However, If the RBA disappoints, and only hikes by 0.25% the AUD may see weakness, and be pressured back to 0.6816. If that level breaks, the next level support the AUDUSD is 0.6500.  

USDJPY breached 136 again as yields back in play

President Biden’s announcement on possible relaxation of China tariffs helped take the focus off recession concerns and risk sentiment improved. US Treasury yields pushed higher with 10-year back to 2.95% and 2-yaer up at 2.92%. This weighed on the yen as well, and USDJPY surged back higher above 136, getting back in close sight of 137 which has been tough to penetrate so far. US Treasury Secretary Janet Yellen will be in Japan next week, there remains a possibility for discussion on currency intervention. Still, looking at the path of US inflation ahead of the midterm elections, it is hard to believe that option being taken up in a coordinated manner.

EURUSD still poised to test 1.0350

EURUSD has been stable around the 1.0440 area. However, Germany’s first trade deficit since 1991 highlights the scale of the headwinds faced by the Eurozone in general. Given the nature of Germany’s exports which are commodity-price sensitive, it remains hard to imagine that the trade balance could improve significantly from here in the next few months given the expected slowdown in the Eurozone economy. Meanwhile, high energy prices will still continue to take a toll on the trade balance as well, and possibly dampen the sentiment on EUR. EURUSD is likely to find it tough to go above 1.0500 in a sustained manner, and focus is therefore on the 1.0350 support.

What to consider?


The RBA has room to be more hawkish/aggressive and could rise rates to 4% this year? Here's our take and the reasons why;

  1. Firstly Commodity prices are not slowing down; the oil price rose 4.3% since the RBA’s last meeting, it’s up 43% YTD and remains supported due to specific supply issues. Coal prices are prices is up 3.3% MoM (up 151% YTD) and are supported higher as coal demand rises and supply remains thin.
  2. Secondly, the Australian property market has shown solid signs of life and property prices like oil/coal are a key component on CPI. Data released yesterday showed home loans and building permits rose far more than expected MoM, despite rates rising.
  3. Thirdly, The Aussie job market has never been so strong; yesterday’s job ads data showed jobs are rising more than expected, and rose 1.4% in June. Meanwhile, job vacancies are at a record low, with 1.1 unemployed people in Australia for every job ad.
  4. And fourthly, wages are growing at record pace, while the minimum wage increased. All in all the futures tell us rates could sit at 3.2% at year end, but we think rates could be closer to 4%, given the RBA is so far behind the curve.

Japan earnings highlight the missing wage inflation feedback loop

Japan’s labor cash earnings were up only 1% y/y against expectations of 1.5% y/y, with real cash earnings down 1.8% y/y.
That means the inflation pressures we have been seeing lately are not creating a feedback cycle to wages, and consumption will likely remain subdued. This gives more reasons to Mr. Kuroda to justify the accommodative policy for the Bank of Japan which is a complete divergence to the global tightening regime we are in currently.

South Korea’s inflation spike sends a chilling reminder to the region

South Korea’s headline CPI for June came out at 6% y/y from 5.4% y/y in May. This was the fastest pace since November 1998, despite subsidies and price caps, suggesting that more outsized rate hikes are possibly coming to Asia as well. Bank of Korea’s rate decision is due July 14, and the bank may need to consider a 50bps rate hike to 2.25% to fight inflation pressures after five hikes of 25bps each have been announced so far. While growth still remains strong in the region, aggressive tightening would mean some slowdown is likely in the months ahead.

Germany reported its first monthly trade deficit since 1991 and plans a law for takeover of gas supply firms.

In May the deficit reached €1bn. This is not surprising. Export-oriented economies suffer from the rise in the price of imported goods. On top of that, the economic outlook weighs on the demand for exported goods thus generating a negative effect on growth. This is not worrying, at that stage. Secondly, consider... the Germany government is said to now creating the legal basis for taking over energy companies. The draft is said to have already been agreed with the factions of the traffic light coalition. This officially aims to regulate financial aid up to and including a state entry in order to be able to avert the bankruptcy of a gas supplier. Germany is facing a tough time. The country’s natural gas storage occupancy is rather low compared to other European countries, at 62% against 97%

for Portugal, for instance. If the next winter is very cold, expect supply issues in Germany and certainly in many other European countries to worsen.

Potential trading and investing ideas to consider 


Australia braces record cold temps, coal stocks move up of fresh slows 

With Coal Futures in Newcastle prices rising an anticipation of the demand/supply situation worsening and likely to deteriorate in the future; Australian coal stocks are once again forming signals of a pick up. Australia’s winter electricity demands are rising and are likely to increase as record low July temps rise could fall again. All while, Australia’s biggest source of energy, coal, remains in tight supply. As such coal giants like Whitehaven Coal (WHC) and New Hope Coal (NHC) and Coronado Global (CRN) have all rallied up off their three day lows. These stocks are also some of the best performers this year. That being said, the coal giant Whitehaven Coal (WHC) is trading 11% lower than it’s record high. The technical indicators look interesting and suggest the WHC rally could continue up from the June 29 low.


For a weekly look at what traders and investors are watching - tune into our Spotlight

For a global look at markets – tune into our Podcast. 

Quarterly Outlook 2024 Q2

2024: The wasted year

01 / 07

  • Macro: It’s all about elections and keeping status quo

    Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

    Read article
  • FX: The rate cut race shifts into high gear

    As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

    Read article
  • FX: High yielding currencies will start losing their appeal

    Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.

    Read article
  • Commodities: Year of the metals

    Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.

    Read article
  • Macro: What happened to the future?

    The gloominess of geopolitical conflicts and the repetitive nature of political agendas. What else does 2024 hold in store for us?

    Read article
  • The rise of populism: Far-right parties will influence the future

    The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.

    Read article
  • Investing in China: Navigating Q1 amid economic challenges

    Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.

    Read article

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.