Overnight, Asian stock markets lost ground after President Trump lined up tariffs on $200 billion worth of Chinese goods. The levies won’t come into effect immediately, and there will be a two month review process, and a hearing in between 20 and 23 August. The move is designed to keep pressure on China.
Stock markets in Europe and the US had a positive run yesterday as the fear of a global trade war faded away. Traders are taking the attitude that no news is good news. The standoff between the US and China hasn’t budged an inch either way, but the lack of movement in either direction has encouraged buyers to enter the fold. Dealers know full well we won’t see the impact of the existing tariffs for some time, and even so, the impact is likely to be small. The lull in the trade spat has removed a lot of the nerves in the markets.
The DAX wasn’t shaken by the poor ZEW economic sentiment report. The reading was -24.7, its lowest since August 2012. It is concerning that the reading has been in negative territory since April, and has been getting progressively worse. Trading relations between the US and the EU are a bit more amicable, which bodes well for German manufacturers, but should the relationship sour, it is likely investor sentiment would fall further.
The NATO summit gets underway in Brussels today. President Trump has already given us a preview of what to expect. Mr Trump has expressed his anger that many countries are not meeting their obligations when it comes to spending on defence. Donald Trump feels the US taxpayer is paying a disproportionately large amount for the protection of other countries. In keeping with his ‘America first’ attitude, we can expect Mr Trump to push for increased military spending from countries like France, Germany and Canada.
The Bank of Canada (BoC) will announce their interest rate decision at 3pm (UK time) and it is likely we will see a rate hike of 0.25% to 1.5%. Higher oil prices have helped the Canadian economy, and have counteracted the ongoing trade dispute with its southern neighbour. The BoC last hiked rates in January, and given that the Fed have raised rates twice since then, we might see a hike today in order to narrow the rate gap.
At 3.30pm (UK time) the Energy Information Administration will release the latest oil and gasoline inventories. The oil market has seen a lot of volatility recently due to supply issues in Canada and Libya. Strikes by oil and gas workers in Norway and Gabon are adding to the supply problem. Amid the supply worries came an announcement from Mike Pompeo, the US Secretary of State, stating that the government would consider allowing a ‘handful’ of countries to deal with Iran after the sanctions come into effect. The announcement took some of the pressure off the oil market.
EUR/USD – has been edging higher since late June, and a break above the 1.1850 area could pave the way for 1.2000 being tested. A move below the 1.1510 region could put 1.1400 on the radar.
GBP/USD – has been in a downward trend since April, but it has been creeping higher recently. A move through 1.3315 could bring 1.3472 into play. If the wider bearish move continues it could target 1.3049.
EUR/GBP – has been in an upward trend since mid-April and if the bullish move continues it could target 0.8900. A pullback might find support at 0.8785 – the 100-day moving average, and a break below 0.8785 might bring 0.8725 into play.
USD/JPY – has been pushing higher since late-May and if 111.39 is cleared it could pave the way for 113.57 to be targeted. A move to the downside might find support at 109.37 – 109.19 area.
FTSE 100 is expected to open 35 points lower at 7,657.
DAX is expected to open 79 points lower at 12,530
CAC 40 is expected to open 28 points lower at 5,406.
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