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Sentiment soured by latest Trump tariffs

Last night President Trump announced a 10% levy would be imposed on $200 billion worth of Chinese imports, and the levy would be raised to 25% come January. 

Mr Trump said if Beijing retaliates, the US would slap tariffs on an additional $267 billion worth of Chinese imports. Amazon and Apple were hit last night as electronics and internet technology products will be impacted by the tariffs. The US government removed certain products from the list of potentially targeted goods like bicycle helmets and smart watches, and this suggests the Trump administration are cushioning the blow to US consumers.

Relations between South and North Korea are continuing to improve as the South Korean president Moon Jae-in met with Kim Jong-un in North Korea. Investors welcomed the meeting, and this is a positive step for North Korea, and it should help them with US relations.

The US dollar took a knock after traders unwound some of their long positions on the greenback. The poor New York Fed manufacturing report encouraged dealers to dump the US dollar. The reading in September fell to 19, from 25.6 in August, while economists were expecting a reading of 23. The greenback has been relatively weak recently given the Federal Reserve are widely expected to hike interest rates next week. There is also increased chatter of an interest rate hike in December.

The dip in the US dollar gave gold a boost yesterday. In recent months, the metal has been largely dependent on a soft greenback for a positive move. Gold has been in a downward trend since April, and while it remains below the 50-day moving average at $1,209, the metal might remain in its downward trend.

Gold hasn’t been attracting the safe-haven funds that it once was, but we could see international investors snap up US government bonds .The US dollar is relatively cheap, and the yield on the 10-year government bond exceeded 3%, and this could spark overseas interest in the asset. Trade tensions between the US and China are playing on traders’ minds, and that could keep pressure on global equities.

The Italian stock markets finished higher yesterday as there is speculation that the populist government in Rome will not break the EU’s rules regarding budget deficits. The coalition partners that form the Italian government were voted in to bring about radical reforms, but the financial markets were worried about the ramifications of the policies given Italy’s level of debt. The possibility of the administration playing ball with Brussels could remove some of the fear surrounding the risk associated with the country, but the move might not be popular with voters.    

Oil closed lower last night as the concerns about weakened future demand from China hit the commodity. The Chinese economy is slowing down and the trade spat with the US is calling into question future demand for the energy. The US government would prefer a slightly weaker oil price, and they, along with Saudi Arabia and Russia could raise output in order to prevent a surge in the price. The Iranian issue is becoming more of a problem, as India is already cutting back on purchases from the country. The US have made it clear they will pressure any country or company that are still dealing with Iran after the sanctions are imposed in November.

EUR/USD – despite the decent bounce back between mid and late August, the market remains in the wider downward trend that began in April, and while it stays below the 1.1750 level, its outlook could remain bearish. 1.1510 might act as support and a break below that mark could bring 1.1300 into play. If 1.1750 is cleared, 1.1850 could be targeted.

GBP/USD – has been pushing higher since mid-August, and if it can hold above the 1.3000 mark, it could edge up towards the 1.3200 area. A move below 1.3000 might bring 1.2785 into play, and below that support might be found at 1.2661.

EUR/GBP – the key week and day reversal that we saw in late August could point to further losses and support might come into play at 0.8835 – 200-day moving average. If the wider uptrend continues it could target 0.9100 or 0.9160. 

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 112.15. Support might be found at 109.77 – the 200-day moving average.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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