A fresh round of US tariffs imposed on China is driving investors to look for safe havens towards the end of the week. What significant consequences could the tariffs have on the US and global equities? Analysts at ADS shared US-China Trade War Global Markets Impact.
23 March, ADS Securities – President Trump announced $50 billion worth of tariffs against the Asian country as a response to China’s intellectual property theft according to the US position.
As a result risk aversion is gripping the currency and equity markets once again with the Dollar gaining against the Euro and the Pound, the Yen breaking below 105 versus the greenback, equities closing sharply lower and Gold hitting $1,340.
Could Trump’s tariffs eventually force the Fed to slow down rate hikes?
Risk aversion will be the key theme for the final 24 hours of trading and clearly, investors are concerned that the US decision will trigger a reaction from China that will escalate matters into a full-scale trade war.
Central bank policy has been the focus this week with the Fed and BoE meetings but now the spotlight will fall again on trade relations. Market participants are trying to gauge the potential toll the tensions between the world’s strongest economies will have on growth and this will be the catalyst for further risk-off sentiment.
Furthermore, we need to keep in mind that the Fed cited the uncertainty fueled by the trade war rhetoric as one of their main concerns after hinting on a steady rate hiking path for the rest of the year. This means that even though the US economy performs well, the Fed are hesitating to grow more hawkish given the unstable global environment but there might actually be a hidden message behind this statement.
US-China Trade War Global Markets Impact
A trade war between the US and China will have a damaging effect on US and global equities but it could have even more significant consequences than we realize. An extended sell-off in the equity market triggered by these tensions could pose a difficult dilemma to the Fed down the road: hike rates 2 more times as expected and drive the stock market even lower or step back and slow down their gradual rate increases?
This scenario has very lows chances of materializing but the mere speculation that a full-scale trade war could prevent the Fed from staying on course could have a massive effect to risk sentiment and investors are already on the defensive.
Asian markets Outlook
The Asian markets are deep in the red this morning following a negative day for US equities that responded to President Trump’s tariffs with strong losses.
The European futures are trending below water ahead of the London opening and the FTSE 100 has dropped below the key 7,000 points’ mark for the first time since 2016 and there’s a lack of support all the way towards the 6,700 area. The Dow Jones is also on a negative trajectory and a further extension of the current downtrend could take the US index to the 23,000 points’ area.
Gold has rallied to $1,340 as risk aversion intensified and a break above these highs would drive the yellow metal a good $10 higher.
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This article was provided by analysts of ADS Securities.
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