Trump threatens to impose new tariffs on China

Summary:

• “We have another $325 billion we can put a tariff on, if we want”, US President Donald Trump said on Monday
• China dumps US Treasury holdings in May to the lowest in two years
• US and Japan may reach a small trade deal involving cars and agricultural products by September

Still in the pipeline

US President Donald Trump threatened on Monday to impose more tariffs on Chinese imports. He said they have another $325 billion they have put a tariff on, if they want. Trump added that his administration hoped that Beijing would not break the deal this time around if such an agreement was hammered out anew. Thus, Trump reminded market participants that the current truce does not mean the US cannot introduce new tariffs once something goes wrong. In terms of other trade war developments let us recall that US and Chinese officials are to hold a phone call this week which may be decisive whether a US delegation travels to Beijing for a face-to-face meeting. Financial markets seem to be getting accustomed to negative remarks related to the US-Sino trade dispute, hence we did not say any particular moves. SP500 futures are trading pretty flat after weakish trading on Tuesday where major US indices finished slightly lower. In Asia, the Shanghai Composite is treading water, the Hang Seng is losing 0.4% while the NIKKEI is falling 0.3%. 

China dumps US Treasuries

On top of that, it is worth mentioning the latest data regarding the largest US foreign creditors. Unsurprisingly, China held the first place in May but its holdings of US Treasuries shrank by $2.8 billion to $1.11 trillion, the lowest in two years. It was the third straight month of decline reflecting some tensions present between the two countries. However, we doubt Beijing will continue selling US Treasuries in the longer-term as a way to retaliate against the US for the ongoing trade war. Keep in mind that China has to purchase financial assets given its high cash levels. Taking into account that US bonds are considered among the safest ones in the world it is hard to believe Beijing may begin selling them at a large scale. In May, Japan was the US second largest creditor with $1.1 trillion of holdings.

We do not have any larger moves in the currency market this morning. However, the AUDUSD seems to deserve more attention as the pair drew a bearish engulfing yesterday nearby its important supply zone. Source: xStation5

US-Japan trade deal

While everybody is waiting for a deal reached between the US and China, which would take risk of protectionism off the global economy, a small trade agreement might be struck between the US and Japan, according to a Reuters report. It says that both countries are working on a possible deal which could be announced in September, during a Trump-Abe meeting in New York. In a possible agreement, Japan would offer US farmers new access to market in return for reduced duties on Japanese cars and auto parts. The story brought by Reuters also suggests that Donald Trump is seeking increased access for US beef and pork products, trying to get support of US farmers ahead of Presidential elections next year. If so, it would be a step toward reducing protectionism in the world. 

In the other news:

• WTI oil prices remain flat this morning after tumbling more than 3% yesterday due to a threat Trump could impose new tariffs on China

• A new European Commission President, Ursula von der Leyen, said on Monday she hoped Trump would not impose tariffs on EU cars

• Fitch affirmed Japanese “A” rating with a stable outlook