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Trade tariffs and US dollar moves still key for markets


Trade tariffs continue to have a significant impact on risk appetite but is there an interesting turn forming on the US dollar. We consider the outlook for forex, equities and commodities markets this week.

There are two themes impacting on markets as the end of Q2 nears. The impact of US protectionist trade tariffs and the strength of the dollar. One could be ramping up just as the other could be at an inflection point, and they are not necessarily mutually exclusive (increased US protectionism is arguably dollar negative). The trade tariffs dispute is becoming a full blown trade war with Trump signaling intention to slap a 10% tariff on $200bn worth of Chinese imports. This would be a game changer as China only imports somewhere between $130bn to $150bn from the US. This could prompt a “quantitative and qualitative” response from Beijing as China cannot match the tariffs dollar for dollar. However, it can make life very difficult for anyone dealing with the Chinese market from the US, such as slowing administration, increasing visa requirements or simply using state controlled media to encourage a boycott of US products. With the US also pushing ahead with tariffs on other countries it is also a supply chain issue, hence why risk appetite gets hit. This could all now coincide with an inflection point on the dollar strength. There are signs that the dollar strength may be approaching exhaustion and could mean that its outperformance could be close to an end. A chart of economic surprises for the US versus the rest of the world has reached extreme levels. It was interesting on Friday that the early signs of a rally on EUR/USD came on Friday after a big miss on the Philly Fed and a positive surprise on Eurozone flash PMIs. Could data begin to turn rate differentials against the dollar again?

 


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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.