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Will Resurgent Trade War Fears Hit the Markets as Trump Decides What Next?

Compared to Thursday’s European equity rally, Wall Street’s moves looked muted. Whilst the broader US market moved 0.25% higher and the Nasdaq secured another record high, the Dow dropped 0.1% as investors are still wary that the steeper pace of rate hikes laid out by the Fed could dampen economic growth.

 

The Fed’s upbeat assessment of the US economy on Wednesday was followed by better than expected retail sales data, as if on cue. US retail sales grew twice as fast as expected and at the quickest rate in 6 months bringing more optimism towards the US economy. However, its unlikely that the dollar’s impressive rally is chiefly down to retail sales; historically this data release and the dollar aren’t so strongly correlated. Instead, the surge in the dollar was mostly thanks to the ECB inspired slide in the euro.

 

ECB Inspired Euro Selloff Continues

The euro extended its fall in the Asian session, hitting a two-week low of $1.1558 as traders continued digesting the ECB’s no rate rises until the second half of 2019 message. The comments clipped the wings of those euro traders that had been getting ahead of themselves with the idea of a late Spring / early summer hike.

 

After the almost 2% loss suffered by the euro in the previous session investors will be looking nervously ahead to inflation data today. With expectations at a lacklustre 1.1%, this could be the final straw to boot the euro lower into the weekend. That said resurgent trade war fears could also be the euro’s saving grace.

 

Chinese Trade Tariffs to Begin?

An announcement by the White House today will pull global trade squarely back in view as Trump decides whether to levy trade tariffs on $50 billion worth of Chinese imports. Whilst Asian markets are trading higher, US futures have dipped marginally. The markets are relatively sanguine moving towards the announcement, suggesting that the traders still do not believe that this will turn into a serious trade war or, alternatively, have had the story come around so many times over the past few weeks that they have simply moved on.

 

Dollar Maintains Rally

The dollar continues to reign strong, maintaining its highs amongst its peers. The subsequent weaker pound and euro gave a strong boost to European equities in the previous session and are seen lifting the European futures to a positive start on Friday. The dollar has fallen 0.1% against the Japanese in what could be argued as increased flows into safe havens, but Gold flat and struggling to move above $1300 raises doubts over the safe havens flow theory.

 

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