Equity markets worldwide are reeling this morning after US president Donald Trump met a key pledge of his presidential election campaign by slapping tariffs on imported steel and aluminium in order to protect US domestic interests. From next week, US imports of steel will be hit with 25% tariffs while the rate for aluminium will be 10%.
"The reaction in FX is relatively muted," says John J Hardy, Saxo's head of forex strategy. While the US dollar isn't the centre of attention in this trade war, the Canadian dollar is exposed as the country's economy is virtually a satellite of its southern neighbour, he says. Japan's yen, meanwhile, has gained: "A fall in risk appetite globally almost always causes a stronger yen".
The Trump news also sees EURUSD back in the range and as long as this momentum is maintained, bulls will likely be encouraged. That said, looming European risk events, including the Italian election at the weekend, are likely to make themselves felt into next week.
But it is equity markets that are bearing the brunt of Trump's trade war. "Europe and China have already responded that they will retaliate and the tariffs could boost inflation in some segments of the economy," says Peter Garnry, Saxo's head of equity strategy.
Such spillover, he said, could affect manufacturers of cars, airplanes, and drinks cans in the case of aluminium, while for steel construction industries would be exposed. On a promising note, however, Garnry notes that a 30% steel tariff imposed by former president George W. Bush back in 2002 was repealed only a year later following strong retaliation from US trade partners.
Finally today, crude oil is range-bound and on the defensive after posting its first monthly decline in the past six months. "US trade tariffs may raise the cost of US shale oil production while slowing growth due to higher transportation costs," says Ole Hansen, Saxo's head of commodity strategy.
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.