Intraday Market Thoughts

Trade War Tell

by Adam Button
Jun 26, 2018 11:27

Global equity indices attempt to recover from Monday's selloff but US index futures dip back into the red, while USD attempt to stabilize after Monday's losses. A trade war wouldn't spill blood but it would certainly turn markets red and on Monday we got a small taste but the White House reaction showed there is little appetite for more. The Premium Insights closed Friday's DAX short with a 290-pt gain on Monday as the DOW30 found support at the all-important 200-DMA, while the SPX500 stabilized at the 55 & 100 DMAs.

بين المؤشرات و الدولار (فيديو للمشتركين)

US equity indices fell by more than 2% on Monday after a pair of reports in the WSJ and Bloomberg suggested Trump was preparing to roll out investment restrictions on Chinese companies, barring them from investing in US technology.

That set a negative tone for the week but it was a slow burn in equity markets with worries eventually turning to aggressive selling. That prompted the White House to send out two top deputies, Mnuchin and Navarro, to deny the stories. Markets finally bounced when Navarro took the airwaves shortly before the equity close to say no investment restrictions are planned. That also sparked a 50 pip rally in USD/JPY.

For the moment, there is no sorting through the confusion although it's abundantly clear that the White House is preparing some kind of action to prevent IP transfers. At the same time, China's Xi reportedly told global CEOs on the weekend that China was no longer going to turn the other cheek and was ready to strike back.

Actions remain more important than words -- Trump's stock market priorities are seen through his decision to send Mnuchin and Navarro to alleviate markets. He measures himself on approval ratings and the DJIA. Navarro was on CNBC.The message here is that the White House may want to be tough on trade but the overriding priority is to keep markets elevated. Perhaps Trump thinks he can have it both ways but if push comes to shove, it will be markets that win out.

That might help to explain why the FX and bond markets were so sanguine even as stock markets were routed.


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