Politics and central bank is high on the agenda this week as markets continue to react to protectionist moves from Donald Trump, the Italian election over the weekend and look forward to four major central banks announcing their latest monetary policy decisions. We consider the outlook for forex, equities and commodities markets in the coming days.
Donald Trump has threatened for a while to impose tariffs to supposedly protect US jobs as part of his “America First” agenda. Sure enough, he announced last week that the US will impose a 25% tariff on steel imports and 10% on aluminium. This signals that he is willing to go ahead and push a protectionist trade agenda. The biggest economy in the world turning protectionist is a concern for global growth. Trade tariffs rarely do anything other than hurt economic activity. Trump’s argument is that he is protecting US jobs by putting up the prices of imports, which would increase demand for US goods, thus helping the trade deficit. However there are always two sides to a story. Countries such as Canada (at c. 16% the biggest importing country of steel into the US), Japan and the Eurozone will respond, and could now impose tariffs on US steel. That is a problem if it begins a trade war. This then reduces demand for US products and subsequently the net effect on the US trade deficit is zero, but overall economic activity is reduced. The biggest winner would be safe haven assets, which is why gold, US Treasuries and the Japanese yen have strengthened. This is also dollar negative as not only does it negatively impact future growth expectations but it is also deflationary which reduces expectations of faster FOMC monetary tightening. The near term dollar rally seems to have run its course with longer term bear trend ready to resume.
At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.