Financial market research and analysis

With just one day to go until trade tariffs are expected to kick in, the markets were showing signs of anxiety overnight.  Wall Street was closed for Independence Day on 4th July, meaning Asian markets were short on incentive, causing them to wobble overnight. Major currencies remained unusually static, except for the dollar which lost ground

Both the US and China stand ready to impose the threatened tariffs on Friday, although China has also stated that it will not fire the opening shot in this trade war. The US must implement their threatened tariffs before China will respond in kind.

With the continued uncertainty as to what the actual next move will be, from either power, traders were opting to sit on the sidelines. European equity markets are pointing to a lower but uninspiring open.

The euro managed to hold onto its earlier gains after hopes for a rate rise before the end of 2019, lifted the common currency. However, thin volumes and fears over Trump's trade frictions kept any upside limited overnight, despite the weaker dollar.

Look ahead:

Moving into the last part of the week volatility in the dollar could pick up. Not only are the minutes from the June FOMC to be released followed by the US non-farm payrolls on Friday, but also trade tariffs on $34 billion dollars’ worth of Chinese imports are expected to begin, in addition to Chinese countermeasures of roughly the same amount. Whilst the dollar was moving lower overnight, gold has picked up in recent sessions, a reflection of growing unease with the trade friction.

FOMC to talk trade wars?

Later this evening the Fed will release the minutes to its June policy meeting; a meeting where they lifted interest rates and revised the expected path of interest rates higher as well. Now signalling a total of 4 hikes as opposed to 3, we can comfortably expect the discussions surrounding the economy to be upbeat. Any discussions over trade war concerns could also attract significant attention.

Whilst at the June meeting Fed Chair Jerome Powell didn’t seem particularly concerned over a potential US-Sino trade war, his comments a few days later suggested that he was. Therefore, investors will be keen to see if the Fed are in danger of turning more dovish in the case that a trade war should kick off. With the WTO already saying that signs of trade tensions are starting to affect the global economy, dollar traders will be nervous that the fourth-rate hike could disappear from view as quickly as it appeared.