President Trump's latest decision to impose tariffs on steel and aluminium producers has already prompted talk of retaliation from European Commission president Jean-Claude Juncker while depressing risk sentiment across world markets.
"The real victim here will likely be emerging markets," says Saxo Bank head of equities strategy Peter Garnry while Saxo commodities head Ole Hansen adds that he sees the situation likely leading to reduced demand for oil and refinery products, particularly transportation fuels.
Crude oil made headlines yesterday as the spread between WTI and Brent crude ballooned to over $10/barrel, a three-year high, with Hansen reporting that it comes down to price differentials between WTI at the delivery hub at Cushing, Oklahoma relative to the export terminals at Houston.
"We ultimately see increased US export opportunities as being likely to rein in the spread before it widens to levels such as the $20/b seen in 2013," says Hansen.
In equities, 233 Chinese A-shares were added to the MSCI emerging markets index today with A-shares now representing 16% of that index. In terms of today's equities trade, Garnry says that US data, and particularly the nonfarm payrolls release, will likely be key.
"We expect the nonfarm payrolls print to show strength despite weak ADP figures midweek," says Garnry, while Saxo head of forex strategy John Hardy points to average hourly earnings as the key metric.
While the strong dollar is pinning gold in a tight range around $1,300/oz and weighing on EM as a whole, Hardy says that the crucial development here likely relates to expectations for the Federal reserve's rate hike cycle as hawkish forecasts falter.
"We are seeing expectations for a three-hike scenario weaken while one-hike forecasts rise," says Hardy, adding that EURUSD is in focus today after faltering around the 1.1750 mark; the euro's fortunes remain tied, of course, to the political unrest seen in Italy and now Spain, where PM Rajoy faces a vote of no confidence today.
Quarterly Outlook Q3 2022: The Runaway Train
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.