Today’s session was mainly driven by the risk-off sentiment that started around 4:00 am GMT after the Chinese Commerce Ministry said that it took countermeasures against five US-linked firms. The Chinese did say that they are hoping to resolve concerns through dialogue but they are not afraid of “fighting to the end” if US wants a trade war. In the markets we’ve seen classic risk-off moves with equities, oil, yields, crypto, copper and so on dropping throughout the session.
The markets remain cautious considering that back in April it was the US that eventually had to back down. If that means that we need to wait for Trump to fold first and swallow his pride, then I’m afraid things could get worse before they get better.
The other highlight of the session was the UK employment report. The data was once again soft with the unemployment rate ticking higher and the employment numbers disappointing forecasts. Moreover, average weekly earnings increased with wage growth remaining elevated and likely limiting BoE’s response. Nonetheless, the markets increased BoE rate cut bets with two cuts now fully priced in by the end of 2026. The pound weakened across the board as a result.
In the American session, the only highlight is Fed Chair Powell’s speech although he’s unlikely to change his stance given that we haven’t got anything new in terms of economic data due to the US government shutdown.
The focus remains solely on US-China headlines as this renewed trade war could have serious economic impacts.