Navarro Knee-Jerk Shows How Sensitive Markets Are to Trade Talk

(Bloomberg) -- Global investors were confronted with some significant swings Tuesday as a comment on U.S.-China trade from White House adviser Peter Navarro sowed confusion and whipsawed markets.

Risk assets slumped and havens jumped as traders took from a Navarro Fox News interview that January’s U.S.-China trade agreement was over. The moves reversed just as quickly after Navarro said the remark was taken “wildly” out of context and President Donald Trump later said the deal is “fully intact.”

The volatility began after Navarro answered a long question on Fox News about whether aspects of the deal were “over.” Navarro said: “It’s over. Yes.”

Read the transcript of Navarro’s interview here.

“Today we got a taste of things to come,” Michael Every, global strategist at Rabobank, wrote in a note.

Despite the affirmation by Trump, “there appears no realistic way China is either willing or able to stick to the deal’s terms,” Every wrote. “At this stage Trump is desperate to maintain some semblance of a ‘win.’ Yet if no U.S. soybean sales are made in bulk soon could he then turn the trade bazooka on China.”

Here’s a look at what moved, showing where some of the main market sensitivities and pressure points lie whenever the trade deal is put in doubt:

U.S. Assets

S&P 500 futures fell as much as 1.6% before recovering losses within an hour of the selloff. Treasury yields followed a similar pattern.

Volatility Futures

The Cboe Volatility Index, or VIX, was closed at the time of the comments -- but its futures were active. July contracts on the “fear gauge” rose as much as 8.6% to 34.35 before falling back.

Asian Shares

The benchmark MSCI Asia Pacific Index briefly erased gains to fall as much as 0.6% before rebounding just as quickly. Regional markets across the region including Japan, Hong Kong, China, Taiwan and Korea all dipped negative before also recovering losses.

Currency Havens

Initial reports of Navarro’s comments sent currency traders rushing to havens, in the form of the yen and the dollar. The dollar-yen pair swung about 0.5%, a move matched by the Bloomberg Dollar Spot Index.

Asia Pacific FX

The Australian dollar also stumbled as much as 0.7% before resuming its earlier upward trajectory. The offshore yuan retreated.

Soft Commodities

Corn, soybeans and wheat futures traded in Chicago also swung on the trade concerns. November soybean contracts dropped as much as 1.6% before paring losses.

Cryptocurrencies

Even cryptocurrencies weren’t spared from the volatility. Bitcoin, which had traded close to $9,800 earlier in the day, briefly dropped as much as 0.4% to $9,610.

The market action “speaks in some way to limited liquidity and people striking first and asking questions later,” said Patrick Bennett, head of macro strategy for Asia at Canadian Imperial Bank of Commerce in Hong Kong. “It does indicate that the market remains very sensitive to U.S.-China tensions.”

©2020 Bloomberg L.P.