It’s been a relatively mixed start to trading in Europe on Friday and the United States is on course to post small losses at the open, as the focus shifts from central banks back to trade.
U.S. President Donald Trump is expected to announce tariffs on $50 billion of Chinese imports today that will once again stoke fears of a trade war and protectionist policies and likely trigger a response from the world’s second-largest economy. Trump has been picking fights with a number of countries on trade in an attempt to address the large deficit the United States runs and China is clearly his primary target.
Markets will always be vulnerable to trade spats between countries and while the response to the G7 meeting may have been quite muted, that more likely a sign of such an outcome being in line with expectations than markets becoming less sensitive to it.
The biggest concern here is naturally that this will continue to escalate and more and more counter-tariffs will be imposed, something that will harm all economies and weigh on investor sentiment. Perhaps Trump feels that the strength of the US economy and recent success in Singapore gives him the breathing room to make a sacrifice on the economy and jobs in an attempt to put additional pressure on other countries.
There are a number of economic data releases to look out for today, although they may be a little overshadowed by the U.S. tariff announcement. The UoM consumer sentiment survey, empire state manufacturing index, capacity utilization rate and industrial production figures are all notable releases for the United States and will be released around the open of the markets so it should be of interest.
The week’s central bank events may be behind us but they’re continuing to have an influence on the markets today. The euro is paring some gains early in the day after coming under substantial pressure as the ECB laid out plans for the end of quantitative easing and the first interest rate hike.
As ever, a hawkish shift in policy was accompanied by some very dovish language from President Draghi which sent the single currency tumbling. Combine this with a more hawkish result from the Federal Reserve meeting on Wednesday and it’s no surprise the euro/U.S. dollar (EUR/USD) currency pair is under pressure again despite a brief recovery over the last couple of weeks. The pair found some support around 1.15 last time but may not be so lucky this time around, while 1.13 could be an interesting level.