Market News & Insights
26 June 2018

Trade Wars to the Fore

So far one of the biggest causalities of President Trump’s trade tariffs has been Chinese equities. Again overnight we saw stocks there falling, with the benchmark index officially recording bear market losses due to the ongoing concerns over the country’s resilience (or lack thereof) to a trade war with the US. The Shanghai Composite Index fell 0.5 percent at the close, taking its loss since a January high to more than 20 percent. Airline stocks extended a rout as a falling yuan boosted the cost of their dollar-denominated debt, while property shares also sank.

US equities also fell yesterday coming under selling pressures, but towards the close pared some of these losses in response to White House trade adviser Peter Navarro attempts to ease investor concerns about U.S. trade policy, indicating that a Treasury Department report later this week on American restrictions on foreign investment won’t be as sweeping as markets are anticipating. The Dow Jones Industrial Average ended the day down 1.3 percent, the ninth drop in the past 10 trading days. The Treasury Department is due to announce restrictions on Chinese investment in the U.S. by Friday. The action is part of the Trump administration’s responses to China’s alleged intellectual-property theft, as laid out in a report that followed an eight-month investigation by the Office of the U.S. Trade Representative.

From a currency perspective, the dollar is lower this morning but probably more a case of profit taking after recent highs. For example the softer USD tone helped EURUSD open this morning above the 1.17 mark and advancing as high as 1.1720 where it appears to have hit some strong selling resistance. Only last Thursday, did it hit 1.1510 lows. In comparison, GBPUSD remains little changed this morning, so in the short term we remain neutral on the pair. As flagged yesterday, sterling has come under some Brexit related pressure after various business groups and large employers expressed their dissatisfaction and fears over the lack of clarity around the process. From this, EURGBP is trading higher breaking back above the .88 big figure this morning (GBPEUR = 1.1364).