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XTB TRADEBEAT

Trump roils markets considering new tariffs on China

Summary:

  • US President Donald Trump instructed the US Trade Representative to consider $100 billion in additional levies against China
  • China blames US for beginning the trade dispute, a move to negotiations still possible though
  • Japanese data illustrates lacklustre wage growth together with household spending

This week is all about a US-China trade war, and the last day is not different. On Wednesday, China decided to impose a $50 billion tariff on more than 100 US goods in response to the release by the US of a list of proposed duties targeting roughly $50 billion of Chinese goods. This was a notable blow to the United States as the list includes the most important products such as soybean, cars, aircraft or chemicals. We did not have to wait too long for another reaction from the US side as President Donald Trump chose to instruct the US Trade Representative (USTR) to consider $100 billion in additional levies against China sending the US stock market lower and gold prices higher in the aftermath. In an official statement issued by the White House he said "In light of China’s unfair retaliation, I have instructed the USTR to consider whether $100 billion of additional tariffs would be appropriate under section 301 and, if so, to identify the products upon which to impose such tariffs".

This could be seen as quite a weird decision given a bit earlier there were some upbeat comments suggesting the US could be willing to begin negotiations with Beijing nonetheless no formal negotiating session has been set for China trade talks thus far. Furthermore, according to the Chinese news agency Xinhua (not official words coming from the government) the US is recklessly wielding the stick of protectionism missing an opportunity to resolve the problem. It also added that if the US insists on acting wilfully, China will fight until the end. Finally let’s add that the China’s Ministry of Commerce issued a statement highlighting that China does not want a trade war saying that a problem is caused by the US. Those comments do not sound certainly reassuringly to say the least signalling we could be a long way off from the end of the trade issue between the two largest economies in the world.

link do file download linkThe SP500 (US500 on xStation5) is falling more than 1% in early trading on Friday in response to the story coming from the Trump’s administration. Source: xStation5

Markets responded quite nervously as the Japanese yen strengthened to below 107 against the US dollar while gold prices jumped above $1330 for a while. Whilst both the yen and gold price have already trimmed their gains, the SP500 futures are trading well below their yesterday’s close. Technically the US index did not manage to break above its short-term crucial supply area placed at 2680 points, the level being underpinned by a 23.6% of the move begun in late 2016.

link do file download linkJapanese wage growth is going nowhere along with retail sales. Source: Macrobond, XTB Research

In terms of the macroeconomic data the Asian session was quite benign as there were solely prints from Japan showing downbeat calculations for both wages and household spending. The former registered its third consecutive decline in February this time by 0.5% yoy in real terms, and even as the consensus had predicted a deeper fall the overall backdrop for spending did not improve. This was reflected by the household spending which fell short of expectations vastly printing a 0.1% increase in February while the median estimate had forecast a 0.4% rise. All of that suggests that domestic price pressure remains subdued and therefore it could influence the BoJ monetary policy.

link do file download linkThe USDJPY is set to gain the second week in a row after drawing a bullish engulfing last week. Nonetheless a major resistance at 108.30 stays in place, and it could constitute a noticeable hurdle fur bulls. Source: xStation5

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