European stock markets are feeling the pain from China’s decision to impose new tariffs on US imports. 

Europe

The initial reaction from Beijing was relatively small, and traders feared there would be another round of levies, and now that has been declared the sell off has intensified. Germany is a major exporter, and even though it isn’t in the firing line, dealers are worried the disruption to global trade could hamper German equities. Protectionist policies are prompting traders to take their cash out of equities, and since there are no signs of this ending, we could see further losses.

WPP declared they are conducting an investigation into a claim of alleged ‘financial impropriety’ by the CEO Sir Martin Sorrell. The allegations have been strongly rejected by Mr Sorrell, but he understands that an investigation needs to be carried out. It is believed the inquiry shouldn’t take long, and investors will be paying close attention to the case. The timing isn’t great since the company recently lowered its profit outlook.

Topps Tiles shares are in the red after the company issued a less than optimistic outlook. First-half profits were slightly higher but the poor weather was blamed for the decline in the second-quarter numbers.  It was the cautious forecasts that sent the stock tumbling by 11.6%.

US

Stocks are firmly in the red as the trade war between the US and China is heating up. Beijing’s announcement that more US products have been added to the list of levies has shaken investor confidence. China is heavily dependent on importing soya beans, and the fact they are proposing a tariff on US soybeans tells us how serious they are about the economic conflict. The move is seen as deliberately targeting President Trump’s voter base in Middle America.  

Boeing and Deere shares have been hit hard as China is looking to impose tariffs on aircrafts and agricultural goods.

The ADP employment report was well received as 241,000 private sector jobs were added, which easily exceeded the 205,000 that economists were forecasting. This has put traders in an optimistic mood for the US non-farm payrolls report on Friday.

FX

EUR/USD is higher on the session and the jump in inflation in the eurozone helped the single currency. The headline CPI number came in at 1.4%, meeting expectations. The core CPI figure jumped to 1.3% from 1.1%, and this is encouraging to see as it highlights the rise in actual demand. The inflation rate has been lagging for some time, but now we are seeing a serious jump in demand, which could prompt the European Central Bank to  rein in its loose monetary policy.

GBP/USD is holding up well considering the UK reported disappointing construction figures. The British construction sector swung to contraction territory last month, which was a major surprise as economists were anticipating a slower expansion rate. The weaker US dollar today has cushioned the poor UK construction figures.

Commodities

Gold has been pushed higher as the flight-to-quality effect has seen traders flocking to the metal. The risk-on attitude of investors and the softer US dollar has kept the commodity in demand. Now that we are in the early stages of a trade war it is likely the metal will remain in demand in the near term. 

WTI and Brent Crude remain lower on the session as the trade war fears are keeping pressure on the energy market. Oil demand is a good measure of global economic health, and now that China have retaliated in a serious fashion, dealers are concerned about future oil demand. The energy information agency showed a major drop in oil and gasoline inventories which added to volatility, but price remained subdued. US oil stockpiles dropped by a whopping 4.6 million barrels, while the consensus was for a build of 400,000.

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