A Reprieve from Trade War Rhetoric

Published on: 07/13/18 8:35 AM

Category: Uncategorised

Stocks Gain as Safe-Haven Currencies Decline

Safe-haven currencies were the underperformers during Thursdays trading session as trade war rhetoric between China and the US was toned down. The global equity markets breathed a sigh of relief and recovered from the volatile Wednesday session. Trade war fears had calmed down as China indicated to the possibility of resuming trade negotiations.

As the Japanese Yen and Swiss Franc lost their luster from Wednesday, the Aussie dollar and the Kiwi rose. The gains in the S&P 500 ended Thursday with its highest close since early February. The index may be able to reverse its declines from February after the announcement of stronger wage gains drove a terror in stocks.

The USD had a mixed trading session. The status of Worlds Reserve Currency for the greenback helped it skyrocket higher on Wednesday due to the fear and uncertainty caused by the trade war threats from President Trump. However, the absence of aggressive trade war news on Thursday between the world’s two largest economies diminished demand for the US dollar. Even the US inflation numbers coming in at 2.9% year-over-year were not enough to give the greenback the momentum it needed to surge like it did on Wednesday.

Outlook from the Fed

Fed chairman Jerome Powell spoke on Thursday and said that he is pleased with the performance in the overall economy but admitted that the Feds inflation target has not been reached. Powell also acknowledged the growing fears surrounding trade policy. He said that high tariffs for a prolonged period would likely have negative consequences for the economy. Another Fed official Patrick Harker pointed out that the tariffs could cause business and investment confidence to decline.

Sterling Declines as Trump Marks UK as Trade War Target

Early in the Friday session, the British pound has depreciated against other major currencies as President Donald Trump directed his newest trade war attack at Great Britain. Prime Minister Theresa May was informed by the President that her lax plan for the UK to leave the Eurozone would hurt future trade deals. This gave the US dollar an advantage over the weakness in the British Pound and the USD headed higher. The New Zealand Dollar dropped slightly when the business PMI reading for June came in at 52.8, a decline from the 54.4reading in May. This resulted in a new 2018 low for New Zealand’s PMI reading.

If the world’s largest economies can come to terms on trading policy that are mutually beneficial, this could have positive results for equities. However, more trade war language is likely to bring back market volatility like the trading session on Wednesday.