A Recap of Trade War Fears in the Market
Published on: 07/17/18 2:10 PM
A Week of Trade Fear
Although there was a reprieve of trade war tensions by the end of the week, the risk of new retaliatory rhetoric is sure to keep the markets on edge. The trade war updates in the market this week consisted the $200 billion Chinese import list, Canada’s reprisal against the US for placing a tax on its metals, and the threat to tariff European vehicles. All these updates were met with retaliatory language from the opposite parties. The volatility declined towards the end of the trading week because there were no new tariffs announced from the United States or punitive actions from other countries. It is likely that the ongoing trade wars may have a negative impact on consumer, business and investment sentiment numbers when they come in.
There are a few fundamental developments that come out this next week, but it is the trade war uncertainty and risk that will remain the drivers for the greenback. The US is taking on multiple countries at time in the trade wars. Many of these targeted countries will place retaliatory measures to combat President Trump’s tariffs or they may decide to sidestep the tariffs by making deals with each other, like the Chinese-German deal. While there are no scheduled events this week that should raise tensions, the prudent trader should pay attention to any headlines and possible new developments. Monetary policy will take center stage as Fed Chairman Jerome Powell gives his semi-annual testimony to the Senate. This past week. Powell voiced his optimism on the growth of the US economy bur held concerns about the continuing trade wars and the negative impact they could place.
Skepticism over China’s Data
The fundamental indicators pertaining to the financial and economic health of a country are often influential in directing the actions traders make. China is an exclusion to this rule due to skepticism concerning the true accuracy of the countries economic data. This past week contained important data to consider from this important trade war actor. Chinas balance of trade improved and lending and financing sharply rose. The second quarter GDP report from China has for a while been questionably stable. To back this headline figure, one should consider other economic variables into consideration.
There were some fantastic moves due to the volatility that was brought on by the trade wars but eventually many of these holdings will go rangebound. The Pound moved a lot this week, but the currency has gone nowhere for two months. There have been some exceptional swings due to the Brexit news and the labor and inflation numbers may only prove to be a short term affect for the GBP. The Swiss franc and Aussie dollar had spectacular moved with the market volatility and then settled on the second half of the week.