Financial market research and analysis

Overnight, that unnerving trade war silence from the White House, which allowed stocks across the globe to charge higher in recent sessions, was broken. The US upped the stakes in the trade war with China, sending equity markets tumbling, as risk-off prevails.

The Trump administration announced tariffs on a further $200 billion-dollar worth of Chinese imports after the US closing bell overnight. Asian markets fell heavily, with China, unsurprisingly, taking the biggest hit, down over 2% at one point; US and European futures are indicating that investors will sell out shares on the open. In the forex markets, the dollar pushed higher versus most of its peers except for the safe-haven yen, which experienced a surge in demand.

Up until now, Trump’s administration had carefully selected products to tariff in order to avoid the US consumer being directly impacted. With this now broad-based, untargeted approach it will be almost impossible for the US households not to be affected, as tax increases will be felt on everyday products. Perhaps this will be the saving grace of the trade war? With midterm elections in four months, political pressure could ramp up on Trump should the wider public start to feel the pinch from the higher prices.

In the meantime, this second move by Trump proves that he is committed to this trade war. The markets have, so far, been relatively tame in their reaction. This move by Trump could change that, in which case traders will start to be much more selective over which markets to buy into, choosing on the basis of which markets are potential winners and losers from this trade war. The recent complacency is expected to disappear.

Dr. Copper indicating a turning point?

Commodities are taking a hit from the increased trade tensions. Oil is off by over 1% overnight, meaning oil majors can be expected to take hit on the European open. Copper also plummeted over 3%, on demand concerns in light of increased trade tensions, hitting its lowest level in almost a year; if Dr. Copper is to be believed then we have struck a turning point in the global economy.

A more hawkish Draghi to lift the euro?

Trade wars aside, ECB President Mario Draghi will be watched closely by traders. Eurozone data is finally on the upswing again after a slow start to the year. Furthermore, at the June ECB meeting, Draghi suggested that the ECB could look to hike rates as soon as summer 2019. Traders will look for Draghi to add more flesh to this bone, a dovish sounding Draghi is not expected today. Whilst Draghi could offer a boost to the euro, it could still prove to be insignificant compared to the dollar’s safe-haven appeal.