Financial market research and analysis

Equities plummet as US & China begin a trade war Global equities plummeted in the previous session on fears that China and the US are now in a trade war. With a risk averse mood dominating, investors rushed to sell out of equities, sending indices lower across the board.  The negative sentiment engulfed Asian markets and the domino effect now looks ready to strike Europe on the open.

China responds

Trump announced 25% tariffs on $50 billion worth of Chinese imports in a dramatic escalation of his America first, protectionist policy and in a bid to punish China for intellectual property infringements. China wasted no time in drawing up a list of 128 products as potential retaliation targets, sending a chill through the markets. The Dow closed over 700 points lower, the S&P shed 2.5% and the Nasdaq % as equities experienced their biggest sell off since 8th February.

Despite Trump claiming that the tariffs would make the US “a much stronger nation” the markets are keenly aware that there will be no winners to a trade war. Worse still, the tit for tat responses that we are now seeing, and can expect to see more of, between the world’s two largest economies, is damaging for their economies and the broader global economy.

Political chaos continues in Washington

The announcement over trade tariffs, also coincided with continued political chaos in the White House, as yet another of Trump’s team stepped down. This time it was the turn of Trump’s lead attorney representing him in the special council Mueller investigation. Whilst the market is unaware of the exact reasons for his departure it clearly indicates that something is amiss; sufficient to unnerve already nervous traders.

Europe to extend losses for a second day Traders are bracing themselves for a sea of red on the open, as bourses across Europe are expected to extend their heavy losses into a second session. After shedding 1.2% in the previous session, the FTSE is hovering at 15-month lows, with falls back towards 6850 in the near term looking increasingly likely. The Dax is also being hit particularly hard as there are still no clear answers as to whether Germany will be exempt from the steel and aluminium tariffs.

Flows to safe haven Yen

Market fears are being played out through increased flows into safe haven assets. Rotation out of stocks and into treasuries, flows into the Japanese yen and to a lesser extent into gold.

USD/JPY tumbled overnight, breaking through 105.00 to a 16-month low at 104.63 in the Asian session, as it continues to trade well below its 100 sma and 200 sma. Resistance is seen at 104.80, a meaningful break through here could see the pair target 104.10. On the contrary support for the yen can be seen at 105.25 prior to 105.60.

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