US Open – Tariffs the Icing on the Cake

Sentiment Tested as COVID Cases Rise

Stock market sentiment is being tested on Wedesday, as a rising number of coronavirus cases combined with US tariff threats against Europe drag heavily on risk appetite.

The rising number of coronavirus cases we’re continuing to see in the US, in particular, is a major concern despite the Trump administrations previous refusal to lockdown the economy again. I imagine there will be significant resistance to restrictions being reimposed but the fear is that they are left with no other option and the recent trends we’re seeing in the data is a worry.

We’re also seeing evidence of rising cases elsewhere, with Germany the latest to report higher numbers after being among the first to emerge from the lockdown. Many countries are lagging behind and may be looking at Germany with apprehension, especially if the situation deteriorates rapidly. That said, the country has handled the crisis as good as anyone so far so there may be lessons to learn.

The other market concern seems far more avoidable and unnecessary but anyone that has followed the US President for the last four years will not be surprised by these actions. The US and EU trading tariff blows, as their respective economies are desperately trying to recover from the devastation the pandemic has caused, is far from ideal.

Investors will be hoping the EU takes a far calmer and less combative approach but who knows. It’s an election year and the President is vulnerable, they may take a far stronger approach and try to hit the administration where it hurts ahead of the November vote. It’s a gamble from the White House but, again, we may see plenty of these in the coming months.

Oil slips as rally looks to run on fumes

Oil prices are slipping alongside other risk assets, with WTI dipping back below $40 a barrel. The trend is still very much in its favour still but the latest wobble could be another sign that the rally is starting to run on fumes.

The price is naturally highly sensitive to the risk of more lockdowns, despite the best efforts of producers to bring the market back into balance. I don’t think we’re yet at the stage where this risk becomes reality and governments will likely take a far more targeted approach, but it will likely continue to weigh.

Gold heading for huge resistance test

The dollar is edging a little higher today but that’s not slowing gold’s push north, despite it generally acting as a drag on the market. Perhaps the yellow metal is slowly seeing some safe haven love again, although I say that with extreme caution having seen those signs crushed repeatedly over the last few months. It’s now finally and comfortably through $1,750 so the next test, and this one could be very significant indeed, is $1,800.

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Craig Erlam

Craig Erlam

Former 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.