European update – Tariffs weigh on risk appetite

Investors calmer as dust settles on US/China setback

It won’t come as a surprise to anyone to learn that attention is primarily on US/China trade talks again on Tuesday, after the prospect of a deal on Friday quickly turned into the threat of new tariffs.

Source – Thomson Reuters Eikon

Trump sent investors into a tizzy after sending out a tweet claiming the White House is preparing to slap new tariffs on China on Friday as a result of slow progress in negotiations.

This may all just be last minute wrangling as both sides dot the I’s and cross the t’s and look to gain final concessions but investors are nonetheless quite wary about the possibility of talks collapsing so late in the day. A deal was pretty much priced in, with the rhetoric of recent months very much being focused around the timing of a deal rather than the prospect of one but that has suddenly changed.

The initial response to the latest development was understandably very negative but as the dust settled and it became clear that talks will continue this week, the hysteria passed and investors instead went into self-preservation mode telling themselves that surely this is only a negotiating tactic. Surely months of talks can’t collapse this late in the day. The chances are they’re probably right but the tone of the negotiations now appears to have become less friendly which means the deal is in jeopardy.

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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.