News & Analysis

Week Ahead -The Dark Clouds of Trade Tariffs

August 26, 2019

By Deepta Bolaky
 @DeeptaGOMarkets

Week Ahead

It is the last week of August, and it is unlikely that investors will get a breather. The tariff hike cast a shadow over the financial markets. Monday kicked off with a risk-off sentiment setting a bearish tone for the week.

Trade War Intensifies

Trade war intensified on Friday with both countries engaging in a tit-for-tat tariff war which have forced investors to reportion their expectations for a further slowdown in global growth.

  • China announced tariffs on US$75 billion of US imports. 
  • President Trump retaliated with a higher tariff of 30% on the US$250 billion of goods coming from China while the remaining US$300 billion of goods will now be taxed at 15%.

President Trump went further by suggesting American companies should move out of China. The reaction was immediate. Investors pulled out from riskier assets and are parking their money in safe-havens. Gold rallied above $1,550 on the open following a massive sell-off in the global markets on Friday.

We expect Friday’s events to echo in the last week of August.

Britain could “easily cope” with a no-deal Brexit

Amid the heightened trade tensions, the latest headlines coming from the UK Prime Minister, Boris Johnson has grabbed attention. The Prime Minister mentioned that the UK could “easily cope” with a no-deal Brexit.

“If we come out without an agreement it is certainly true that the £39bn is no longer, strictly speaking, owed,” he said “There will be very substantial sums available to our country to spend on our priorities. It’s not a threat. It’s a simple fact of reality.”

Boris Johnson shifted the entire blame of the event of a no-deal Brexit on the EU. The gains in the British Pound against some major currencies like the Euro and the US dollar last week on the back of talks being held in France may be short-lived.  We may see huge volatility in the Pound and GBP crosses this week if the attacks continue.

Economic Data 

The focus will be on the US and the Eurozone area this week. As the markets are being roiled by trade and geopolitical tensions which have exuberated recession fears, investors will likely become more data-dependent.

United States

Monday: Chicago Fed National Activity Index, Nondefense Capital Goods Orders, and Durable Goods

Tuesday: S&P/Case-Shiller Home Price Indices, Housing Price Index and Consumer Confidence

Thursday: Jobless Claims, GDP, Core PCE & PCE, and Home Sales (US)

Friday: Personal Spending, Core PCE, Personal Income, Chicago Purchasing Manager’s Index, and Michigan Consumer Sentiment Index (US) 

Europe

Monday: IFO Expectations, Business Climate and Current Assessment (Germany)

Tuesday: Gross Domestic Product (Germany)

Wednesday: Gfk Consumer Confidence Survey (Germany)

Thursday: Business Climate (Eurozone) and Unemployment Change and Rate (Germany)

Friday: Retail Sales (Germany) and Unemployment Rate and Consumer Price Index

The Fed Chair provided little hints on the interest rate outlook at Jackson Hole. His comments were tilted towards future rate cuts but were not as explicit as markets participants had expected. We note that some members of the FOMC see the US economy growing and do not want to see a reduction in the near future. 

We have a divided Fed, and hence, the incoming data might help to shed some light on the direction in the US interest rates.

The poor data in Germany and across the Eurozone area is also alarming. Traders will keep monitoring the economic releases to assess the weakness in the Eurozone economy and to gauge the easing policies in the coming weeks. 

Bitcoin 

Bitcoin, the flagship of cryptocurrencies, was trapped in a tight range recently and broke down below a key support level at $10,000. As the financial markets turned red amid trade tensions, Bitcoin rose higher on Monday. On the technical side, we note that BTCUSD is currently finding resistance at $10,530. 

It will be interesting to see how the cryptocurrencies flare-up this week amid market angst.

Tuesday, 27 August 2019
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
1.484 0 0.021 0.005 0 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 13.48 0 0

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