Safe havens catch a bid as trade wars go ugly

Summary

- China questions point of further trade talks with the United States
- Equity markets sink on trade war escalation
- Video game producers plunge after Trump’s speech on mass shootings
- Antipodean currencies plummet while safe-havens rally
- Precious metals rally

China decided not to wait on the sidelines and sent signals hinting at the break down of trade talks with the US. Unsurprisingly, China said it does not see sense of further negotiations given imposition of a new round of the US tariffs. Moreover, reports surfaced saying that the Chinese government barred domestic companies from buying the US agricultural products. It looks like we are back to square one when it comes to Sino-US trade conflict and global stock markets are reflecting this view on Monday.

Bears were dominating stock exchanges during the Asian and European trading hours and there are little signs of improvement at the beginning of the US session. Technological Nasdaq index is being the most impacted and is trading almost 2.8% lower on the day. Other US indices are also experiencing declines of around 2% while VIX - the fear gauge - spiked 24% today. Downward pressure touches almost every sector but there is one group of stocks that is copied particularly poor today - video games producers. In a speech aimed at condemning recent mass shootings in the US, Donald Trump put the blame on “gruesome and grisly” video games and called for action.

Moving to the FX market, one should not be surprised that safe haven currencies like JPY or CHF are among the best performing majors. On the other side of the table, we have Antipodean currencies that are subject to the biggest pressure today. The British pound is another currency that is performing poorly today - GBP lost ground after Jeremy Corbyn called for a vote of no confidence for a new Prime Minister while the UK government spokesman reiterated that the United Kingdom will leave the EU on 31 October. The US dollar also lags behind G10 peers after ISM non-manufacturing index for July slumped to a 3-year low.

When it comes to commodities, it would be easier to name those that are trading higher rather than those that trade lower today. In fact, precious metals are the only group that is experiencing gains. Apart from that, wheat and corn prices look quite resilient to today’s broad declines. Significant underperformance can be spotted on the oil market where Brent is trading over 2% lower.

There is one group of assets that seems to be benefiting from the ongoing turmoil - cryptocurrencies. Bitcoin is trading over 1000 USD higher and hovers somewhat below the 12000 USD handle. Capitalization of the whole market climbed back above the $300 billion mark.

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