Trade War Taking its Toll on Markets

Another Rough Day in Store as US-China Trade War Ramps Up

For a person who’s been obsessed with stock market gains since his election victory 16 months ago, US President Donald Trump doesn’t appear too concerned about the impact his tariffs are having at the moment.

Trump may be prepared to add the European Union to the list of those that are temporarily exempt from the tariffs – with Canada, Mexico and Australia having been allowed similar exemptions – but that has barely cushioned the blow for investors.

Understandably, the prospect of a trade war between the world’s two largest economies is not particularly desirable for investors. The global economy is finally starting the tick along nicely after a decade of efforts to repair the damage of the global financial crisis and the issues that followed and now we’re potentially having to deal with an entirely self-inflicted and avoidable problem.

EUR/USD – Euro Steady, US Durable Goods Reports Next

Trump’s decision to impose tariffs on $60 billion of Chinese products will undoubtedly trigger a retaliation from the world’s second largest economy and bring about a series of actions that could end in a full blown trade war. Already investors have made their feelings known about such measures, with the Dow and S&P 500 yesterday shedding nearly 3% alone and futures suggest it’s going to be another rough session as we head into the weekend.

Dow 30 (US30) Daily Chart

OANDA fxTrade Advanced Charting Platform

Investors Flee For Safety Putting Particular Pressure on Japanese Stocks

Europe and Asia were not immune to the news, with Chinese stocks unsurprisingly taking a particular beating overnight. Japanese stocks were also hit particularly hard, with the appreciation of the safe haven yet delivering a second blow to domestic stocks that rely heavily on exports.

USD/JPY Daily Chart

Clearly investors aren’t particularly keen to carry much risk into a weekend that could see tensions escalate between the two nations. Another safe haven, Gold, is up more than 1% on the day and more than 2% over the last couple of days as investors typically opt for the yellow metal in times of uncertainty.

China is not backing down, and why should they ?

Sterling Slips as May Hopes to Secure Transition Deal Approval From EU

As the EU prepares to vote on the Brexit transition deal that was agreed earlier in the week, the pound is trading a little lower in a potential sign of exhaustion for the currency. Even a clear indication from the Bank of England on Thursday that a rate hike is near – probably May – wasn’t enough for the pound to hold onto gains for very long, potentially a sign that all the sterling-positive news is now fully priced in.

GBP/USD Daily Chart

If the vote passes as expected today, it may not be enough to improve the fortunes for the pound but it will come as a relief to Theresa May who will see it as a significant step towards achieving a Brexit deal that, at times, has looked in doubt. The challenge for May now centres on forging a future relationship with the EU that needs to be wrapped up by the end of the year, with the next mini-deadline being June.

Despite unrest among some Brexiteers to the terms of the transition deal, May must be feeling pretty pleased with herself but now needs to convince businesses that she can be entrusted to deliver a deal that protects their interests also. If nothing is, in fact, agreed until everything is agreed, May will have to rely on trust to prevent businesses from putting contingency plans into practice, something some have already started doing regardless.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.