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note, however, Garnry notes that a 30% steel tariff imposed by former president George W. Bush back in 2002 was repealed only a year later following strong retaliation from US trade partners.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.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist