European Open Preview – Trump fires fresh rate salvo, how will China "strike back"?

European Open Preview – Trump fires fresh rate salvo, how will China "strike back"?

C. Parthenidou & M. Hadjikyriacos, XM Investment Research Desk

Here are the latest developments on the world markets:

  • FOREX: The dollar index declined marginally on Tuesday (-0.08%), meaning that the notable losses it had passed in the previous session were unable to attract the inflow of safe havens, despite a further escalation of the gap between the US and China. The pound won ground next Monday as investors moved to an EU summit that starts tomorrow, with expectations for a Brexit breakthrough that is rising high.
  • SHARES: American markets closed in red on Monday, under pressure from a new escalation in Sino-US trade skirmishes, with the technology sector taking the lead. The technically heavy Nasdaq Composite (-1.43%) performed worse than big names like Apple (-2.66%), Amazon (-3.16%), Netflix (-3.90%) and Twitter (-4, 18%) were slammed. Outside the technology, however, the losses were rather limited, with the benchmark S & P 500 (-0.56%) and the Dow Jones (-0.35%) that did not feel that much heat. As far as Asia is concerned, most indices surprisingly ended surprisingly well in green, perhaps because the announced US rates were smaller than previously advertised. The Japanese Nikkei 225 (+ 1.41%) and Topix (+1.81%) climbed back from their holiday on their first day, while in Hong Kong the Hang Seng rose by 0.49%. The markets in China and South Korea were also higher. In Europe, most benchmarks would be opened lower today, suggest futures.
  • Raw materials: The oil is lower on Tuesday because the tensions between the two largest economies in the world come to the fore again and cast a long shadow on the prospects for future raw consumption. WTI decreases by 0.33% against $ 68.81 per barrel, while Brent loses 0.47% of its value, trading at $ 77.76 / barrel. Crude prices may remain sensitive to any updates in the trade quarrel, especially when China is rapidly falling back. In precious metals the gold is falling today by a marginal 0.06% from $ 1197 per troy ounce today, it continues to show no interest in developments on the trading front and remains in a narrow range between $ 1189 and $ 1214.

Major movers: Trump fires fresh rate salvo; euro and pound forward on Brexit hopes

As was generally expected, the Trump government announced yesterday that it will impose a 10% rate on $ 200 billion on Chinese goods from 10 September. From 2019 these rates will be increased to 25%. The delay is obviously meant to give American companies valuable time to reconfigure and adjust their supply chains before the higher costs really start to "bite". Interestingly, the inclusion of this new timetable suggests that the US expects this to be a long-term and long-term trade quarrel, pouring cold water from expectations for a quick diplomatic solution.

Typically, Trump also warned that if China revenges – what the Asian nation has stressed – its government will pursue new tariffs for another 267 billion Chinese products. All in all, Trump appears to be increasing the pressure to the maximum before the US interim elections, and with Beijing he will almost certainly hit back, as it does not want to be "harassed" by the US, but there may be escalating further into the coming weeks. Now the ball is at the Chinese court. It will be crucial to see which method and extent of retaliation Chinese officials consider appropriate to use, and whether the previously planned talks with the US are now dead in the water.

Regarding the reaction of the market, the size of relocations was not as great as expected after such an escalation – perhaps because the relocation was well wired in advance or because the tariffs were smaller than the expected 25%. US equity markets closed lower, albeit not massively, while safe-haven currencies, such as the yen, were generally weak, leaving no substantial inflow. The dollar was the largest underperformer and ended the day across the board despite growing trading risk, which until recently supported the currency.

The biggest outperformers in the Monday session were actually the pound and the euro, in that order. Both currencies rose when investors at the EU summit seemed to be favorable, which is likely to pave the way for what may be expected of the Brexit negotiations in the autumn. Some even suggest that this event could be the "turning point" for the talks, but to be honest, until a realistic solution to the Irish border issue is presented, such optimism can be unfounded.

Elsewhere today, aussie / dollar is up by almost 0.50%, after the RBA has released a somewhat optimistic tone in the minutes of the last meeting of the day, reiterating that the next interest rate hikes are likely to go up.

Day ahead: trade to keep markets busy; Brexit in focus

After the tariff announcement by the American president late on Monday, which launched an additional 10% rate against Chinese imports worth about $ 200 billion, eyes will now look to China. Investors are eagerly awaiting to see if Beijing will continue the trade dispute that has already arisen by also taking countermeasures and what the extent of a possible retaliation is. However, on the basis of the most recent statistics, Chinese orders for American products amount to about $ 130 billion, less than a third of what the US buys from China, which raises the question of whether Beijing will simply decide to reduce the already existing rates on US imports. to increase. In addition, traders are now more worried that the US could become even more punitive if Beijing battled back, with the US president who yesterday warned that in this case he would activate further tariffs for 267 billion Chinese goods, including Apple products. Keep in mind that the new import rate of 10% will take effect September 24thwhile out 1 January 2019, the weight will increase to 25%. However, questions remain as to whether China will agree to resume or cancel trade negotiations with the US.

The Brexit will also remain in the spotlight this week, while the UK Prime Minister is preparing to meet EU officials at an informal summit in Salzburg, Austria at September 20, where the UK resignation plan will be a highlight on the agenda. Although the recent headlines support the EU's preference for avoiding a no-deal Brexit, other sources suggest that the EU has not softened its position. On Thursday top markets can get new clues about where the EU is, six months before UK officially left the trading bloc. Note that in a report from The Times the hope for Brexit progress was raised yesterday and that the EU Brexit negotiator Michel Barnier is working on plans to limit physical controls at the Irish border, a key point in the Brexit process. conversations.

With regard to data releases, Tuesday The calendar will show Canadian Manufacturing sales for the month of July at 1230 GMT, while at 1400 GMT the National Association of Home Builders in the US will publish its housing market index, which tracks the relative level of current and future home sales. In New Zealand, the outcome of the biweekly dairy auction is due at a provisional moment.

Technical analysis – GBPUSD rally stretches to 2½-month high; looks positive in the short term

GBPUSD recovered significantly after falling at 1.2784 on September 5, its lowest level since August 20, returning above the Ichimoku cloud on the 4-hour chart to reach 2½-month high positions at 1.3169 today. In the short term, the upside risks are likely to continue as long as the red Tenkan-Sen line continues to fluctuate above the blue Kijun-Sen line and the RSI trends above its 50 neutral mark.

On the positive side the price could test the peak of today of 1,3169, which acted as a resistance July 30 also. In fact, the bulls can try to break above the 1.3212 where the market was waiting 26 Julywhile steeper rises can encounter a wall between 1.3275 and 1.3290.

In the alternative scenario, if the bearish forces dominate, the price could fall until it meets the 20-year simple moving average that currently stands at 1.3106, which has limited the downward movements of the past two weeks. A lock below that line, and specifically a fall lower than the peak of August of 1.3042, could, however, cause further bearish actions, probably to the area around 1.2980.