Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Traders Move Risk Off The Table Alarmed By Escalating Trade War

Published 19/06/2018, 19:05
Updated 14/12/2017, 10:25

Traders Move Risk Off The Table Alarmed By Escalating Trade War

Risk aversion dominated on Tuesday as investors express their alarm at the escalating trade tariff spat between US and China. Asian market tumbled overnight with the Shanghai composite closing down over 4%, European bourses have spent another day in the red and US markets are extending losses as they approach areas of potential support.

Trump initiated the second round of this trade row by looking into 10% tariffs to be placed on $200 billion worth of Chinese imports. This would come in addition to the tariffs on $50 billion worth of imports, should China retaliate; a move which effectively confirms that a damaging trade war is underway, leaving many questioning where the end point will be? Global GDP could stand to be hit by 2% - 3% should the trade war continue and spread, to put this into context the Great Recession wiped out 6% of the global GDP, so this trade spat is by no means insignificant.

For weeks the market has been relatively complacent that Trump’s tough protectionist rhetoric were merely a negotiating tool; however, the realisation that the US President is willing to go ahead with his threats has sent a shiver through the markets. Risk is being taken off the table with equities taking a hit. The Dax is off a further 1.5% today extending 1.3% loss from the previous session, with large exporters dominating the lower reaches. Meanwhile, safe haven currencies such as the yen and the Swiss France are benefiting from increased inflows.

FTSE finds support from weaker pound

The FTSE is once again faring a little better than its European and US counterparts, manging to claw back earlier losses to trade just 0.5% lower heading towards the close. The weaker pound is once again a factor in supporting the index, as Brexit uncertainties highlighted by the government’s defeat in the House of Lords, continue to chip away at sterling demand. Investors will be looking towards The Bank of England’s committee meeting on Thursday willing for some hawkish comments to lift the pound from its 7-month low.

Alternatively, a dovish message from the central bank could send the pound back towards $1.30 a level last seen in November.

The end in sight?

Looking ahead, the only potential stop for Trump could be the reality of mid term elections. A large percentage of the US population are not going to be happy about paying more for imported goods. This is a long shot and still sufficient time away for damage to the markets to continue, however it could also prevent this trade war from spiralling out of control.

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.

Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Original post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.