•The Japanese yen rallied to a six-week high against the dollar on Wednesday as growing concerns about the trade dispute between China and the United States prompted investors to take shelter in perceived safe-haven assets.
Focus is on trade talks on Thursday and Friday in Washington, where Chinese Vice Premier Liu will try to salvage a deal that would avoid a sharp increase in tariffs on Chinese goods scheduled to take effect on Friday.
The prospects of an escalation rather than a resolution of the spat between the U.S. and China has seen the yen gain in recent days, with the currency up 0.2 percent against the dollar at 110.07 yen, taking its gains to more than 1 percent so far this month.
Elsewhere, the euro was up 0.1 percent at $1.1213, but holding within recent ranges as currency traders were still undecided on the inflationary outlook for the euro zone economy and the latest developments on the trade war front.
•Investors are worried the U.S. and China may not find enough common ground to head off a new round of tariffs later this week that could bite into global growth, squeeze profit margins and drive down stock prices.
Trade negotiators are scheduled to meet this week in Washington, but recent tensions make it less likely a deal will be agreed to before the Trump administration unleashes a new round of tariffs. Analysts say a deal is still possible, but the risks have risen that there will be more tariffs before a deal can be agreed, and it could then take a lot longer than expected for an agreement to be hammered out.
Keith Parker, chief U.S. equities strategist at UBS, said the hit to S&P 500 earnings would be 2% or greater, if the 10% tariffs on $200 billion in Chinese goods are raised to 25%. Parker said earnings would be hit by 7% if there was a full blown trade war, while the S&P 500 could trade in a range of 600 points on different scenarios of escalation of trade wars to de-escalation. The S&P is now near the top of the range, he said.
The seeming divide between Chinese officials and the Trump administration added to concerns, after week’s of positive commentary from both sides.
Hogan said China’s comments are problematic and could indicate the two sides are far apart. “They’re not going to back down from the parts of the deal they want. They don’t want to have a full account of the deal made public,” he said.
“If we have the increase from 10% to 25%, that would lower Chinese growth by a half a percentage point, and global growth by 0.2 of a percentage point,” said Cesar Rojas, global economist at Citigroup. The impact on U.S. growth would be less than a tenth of a percentage point.
•China posted a big miss in its overall trade surplus for April, which came in at $13.84 billion, customs data on Wednesday showed. That was far lower than the $35 billion economists polled by Reuters had expected, and below the $32.65 billion posted in March.
Dollar-denominated exports also missed expectations in April, falling 2.7 percent from a year ago, according to data from the China’s General Administration of Customs. Economists polled by Reuters expected an increase of 2.3 percent from a year earlier.
April imports, meanwhile, rose unexpectedly by 4 percent from a year ago, compared to a decline of 3.6 percent that economists expected. Imports in March fell 7.6 percen
•China’s imports of crude oil, coal and soybeans rose in April from the same month last year, while cargoes of iron ore and copper dropped, customs data showed on Wednesday.
VIVEK DHAR, ANALYST AT COMMONWEALTH BANK OF AUSTRALIA, MELBOURNE
“April’s figures are a mixed bag and may point to further slowing economic growth in China after we saw signs of cooling momentum in March, but we need to wait for more figures to confirm that.
“You would expect imports of refined copper to be strong, given the restrictions on scrap imports, but they have slowed, as have imports of copper concentrate, though these may have been impacted by disruptions at MMG’s Las Bambas copper mine in Peru.”
•Oil prices rose on Wednesday as U.S. sanctions on crude exporters Iran and Venezuela as well as ongoing supply cuts by producers have left markets tight just as crude imports to China rose to a record for April.
U.S. West Texas Intermediate (WTI) crude futures were at $61.96 per barrel at 0658 GMT on Wednesday, 56 cents, or 0.9 percent, above their last settlement.
Brent crude oil futures were at $70.31 per barrel, 43 cents, or 0.6 percent, above their last close.
Reference: Reuters, CNBC, FX Street
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