Stock markets: Rhetoric trump threatens global fall
On Sunday, Donald trump announced plans to raise duties on Chinese goods worth $200 billion, with 10% to 25%. In addition, the U.S. President expressed readiness to set a higher rate of 25% on additional list of goods, valued at $325 billion (by the way, this interest rate was zero).
News introduced traders in a stupor, and start of trading on Monday was marked by sharp demand for defensive assets. Earlier, the markets have placed in quotations, the final signing of the trade deal, which was scheduled for this Wednesday and become the formal end of the trading conflict. However, things did not go according to plan. Now, Chinese blue-chip index A50 China loses more than 5% since the beginning of the day, while futures for the basic indexes of the USA decrease by 2%.
An impressive rally of stock indices from the first of January was based on three pillars: the easing of monetary policy, improving macroeconomic indicators, as well as the proverbial hope for a bargain. Even the fact that the American indexes at the end of last week was at historic highs, makes the situation even more vulnerable for a strong correction. Moreover, increased trade rhetoric may cause long-term sales and lower demand for risky assets in the coming days. Technical analysis suggests little support for the S&P500, down to the level of 2850, which passes through a 50-day moving average.
The dollar drops after the release of Friday’s data on the labor market (Nonfarm Payrolls) as investors didn’t find in the report signs of increasing inflationary pressure. At the opening of the week EURUSD started trading with a gap down, due to the flight from risk. However, the beginning of the auctions in Europe has managed to regain a couple back to 1.1200. In a broader perspective it should be borne in mind that trade disputes and a slowdown in global (and Chinese) economy often shape downward pressure on EURUSD.
The Chinese yuan began on Monday as a fall of 1.3%, the sharpest over the past 3 years, at some point, referring to the level 6.82 per dollar (the highs from January). The next few days could be critical for determining the subsequent trend will reversal, or the situation will be resolved otherwise, will see soon.
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