Equity markets underwent a quick about turn in sentiment yesterday, pivoting sharply from decent gains to fall sharply after President Trump unexpectedly announced that he would be reintroducing steel and aluminium tariffs on Brazil and Argentina, for devaluing their currencies thus hurting US farmers.

Up until then European markets had been basking in the afterglow of improving manufacturing numbers, which was helping raise expectations that the manufacturing sectors in Asia and Europe were in the early stages of a turnaround.

Trump’s announcement saw those gains start to disappear, while the latest US ISM manufacturing numbers completed the job, along with commerce secretary Wilbur Ross, who told Fox News that the President would be increasing tariffs on China if there was no deal by December 15th, saying that any negative effect wouldn’t affect Christmas for US consumers, as retailers had already stocked up at the lower prices.

As a result, markets in Europe had their worst one day fall in two months, as well as wiping out the gains of the last three weeks.

This sudden new belligerence from the US appears to have caught markets on the hop, with the US also threatening to increase EU tariffs further after the WTO ruled in favour of the US with respect to EU claims that all illegal subsidies had been removed. The goods targeted are likely to include products from the UK, as well as France, Germany and Spain. The Trump administration also proposed the imposition of 100% tariffs on French goods in retaliation for France’s proposals to target US technology companies in the form of a digital tax.

The big question now is whether the US really means what it says, or whether this will be just another occasion when the US talks tough, only to back away at the last minute. If history is any guide the Europeans are likely to find US crosshairs start to move increasingly their way, the closer to next year’s US election we get.

Unsurprisingly, Asia markets haven’t reacted well to the weaker closes in Europe and the US, however given that they were only playing catch-up, European markets still look as if they might open slightly higher this morning.

On the radar we have the latest construction PMI numbers for November from the UK economy. Yesterday manufacturing picked up more than expected, rising to 48.9, still in contraction territory but a decent improvement from 48.3. Expectations are for construction activity to come in at 44.5, a modest uptick from the 44.2 in October.

It’s also set to be a nail-biting day for UK Prime Minister Boris Johnson as President Trump touches down for the NATO summit. Given the US President’s penchant for opening his mouth unprompted, you can be certain that some elements of the media will only be too keen for his opinions on a range of subjects from trade to the NHS to the Prime Minister himself.

The visit has all the hallmarks of a potential banana skin for the Prime Minister at a time when the lead in the polls appears to be starting to narrow in Labour’s favour. Mr Johnson will no doubt be hoping that the US President heeds the advice of his own officials and not comment on the ongoing UK election, despite his antipathy to Jeremy Corbyn, though given Corbyn’s approval ratings he’s not alone in that.

EURUSD – found support at 1.0980 last week, and appears to be heading back towards the 1.1180 area and 200-day MA. A move below 1.0980 opens up the prospect of a move towards the October lows of 1.0880.

GBPUSD – still finding plenty of resistance up near the 1.3000 area which continues be a key barrier, while we also have support at the 1.2760 area. The 200-day MA at 1.2680 is a big support level and while above it the scenario remains bullish for 1.3200.

EURGBP – appears to have found a short-term base just above the 0.8470 area, and could head back towards the 0.8670/80 area which is a key resistance.

USDJPY – fell short of the 110.00 area at 109.80, as well as trend line resistance from the 2018 highs at 114.75. Support now comes in at the 108.70 area, as well as interim support at the 108.20 area and 50-day MA.

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