US open – Trade War, Gold, Oil, Germany

Markets Pare Tariff Gains

Trump gave investors a big lift on Tuesday as he unexpectedly announced a delay on tariffs on some Chinese imports, alleviating some of the trade war concerns.

Source – Thomson Reuters Eikon

The delay impacts around half of the $300 billion of imports and quite clearly focuses on popular consumer products that could have made the Christmas shopping period a lot more expensive for American consumers. Trump’s decision to protect consumer’s from tariffs in such an important period makes a lot of sense, but it also recognises that 2020 could become much more expensive for them if progress is not made.

The decision may actually prove to be a win on multiple fronts, as the tariffs would likely have lifted inflation just as the Fed was being pressured into cutting rates due to the economic risks and mild price pressures. The last thing the White House wants to do is give the central bank a reason not to cut rates at a time when the economy is at risk of slowing.

It also takes some of the heat out of the situation involving the two economic powerhouses, allowing possibly for more talks to take place and compromises to be found. There’s little reason for optimism on this, given how recent meetings have gone, but we have to hope that eventually common sense will prevail. It’s just a case of how much pain both sides are willing to take and inflict on others in the meantime.

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Gold barely flinches at Trump tariff announcement

Gold seems to have barely flinched at Trump’s announcement despite it being positive for risk, the dollar and the economic outlook, highlighting just how bullish the market is right now. Sure, the yellow metal fell a few percent on the announcement but it’s already back above $1,500 and looks relatively undeterred. The central bank environment right now is clearly aiding this unwavering belief in the rally and perhaps this just isn’t viewed as the game changer for interest rates as it maybe is for the US holiday period.

Gold Daily Chart

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Oil surges as relief lifts prices

Oil shot higher on the tariff announcement as a rare piece of good news for the economy brought some long sought after relief for prices and likely triggered some profit taking. Oil prices have been hammered by the economic slowdown and increasing risks to the outlook, which naturally has consequences for demand growth at a time when oversupply has already weighed heavily on prices. It’s too early to celebrate though unfortunately as this act of self-protection from the president is unlikely to prove to be the tension-thawing act some are hoping.

WTI Daily Chart

EUR steady as Germany joins UK in negative growth territory

It’s been an interesting morning on the data side in Europe, where Germany joined the UK in the second quarter in recording negative growth. While the UK could argue its contraction is a temporary effect of first quarter stockpiling ahead of the initial Brexit deadline, Germany is arguably more concerning and reflects a broader slowdown as the world around it slows and trade takes a hit. That doesn’t give us much hope that the country will bounce back in the third quarter, as you’d expect with the UK, although that doesn’t seem to be knocking the euro which had already priced it in.

EURUSD Daily Chart

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