Trump triggers sell-off with new tariff push

Markets in decline as US prepares $200bn in tariffs against China

Equity markets in Europe are trading in the red once again on Wednesday and those in the US are on course to head in the same direction, as trade war fears once again take hold.

While this announcement has been expected ever since US President Donald Trump first hinted at such a response to Chinese retaliatory measures, it is a stark reminder that common sense is not prevailing – as many hoped – and the risk of a full blown trade war is very real. In instructing US trade representative Robert Lighthizer to start preparations for the new range of tariffs, Trump is showing that he is not bluffing and is willing to take this all the way which is very worrying.

Trump’s relationship with US’ allies will certainly come into focus in the coming days. The NATO meeting over the next 48 hours will certainly be a tasty affair with Trump having repeatedly and publicly bashed other members for their contributions, particularly Germany who the US President has also targeted on trade. He will then head to the UK which is facing something of a crisis itself and hoping it can rely on its “special relationship” to agree a good trade deal in the future and make a success of Brexit.

DAX slides as trade tensions spook equity markets

Carney one of many central bankers appearing today

While investors are very much focused on trade at the moment, there are a number of central bankers speaking today which will attract attention. With the UK potentially heading for a rate hike in August, the comments of Bank of England Governor Mark Carney will be particularly interesting, particularly given the political turmoil that the country is experiencing at the moment as it struggles to agree on its Brexit vision so close to exit day.

Of course, the Bank of Canada rate decision will be the headline act on the central bank scene today. It is widely expected to raise interest rates for the second time this year – the first hike coming in January – after the economy improved slightly in recent months and inflation rose also, although this has come as unemployment has ticked higher.

Investors turn risk-averse on tariff war escalation

GBP holding up even as political landscape becomes more uncertain

Two high profile resignations have piled the pressure on Theresa May, who some believe may actually be stronger as a result. Should more follow though, a leadership challenge and even elections may result which would create a huge cloud of uncertainty for the country, negotiations and ultimately, investors. The pound has held up relatively well under the circumstances but I doubt that would last if May is replaced with a more outspoken Brexiteer or new elections are held.

GBPUSD Daily Chart

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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 Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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