European stock markets tumbled on Friday after Donald Trump escalated the trade war with China. The US President announced the Washington would levy a 10% tariff on a further $300 billion in Chinese goods. The statement, which followed the latest round of trade talks, fueled risk aversion across the board and hit stocks dramatically.
On the data front, the Eurozone economic reports were mixed. While retail sales came much better than anticipated, the PPI declined more than expected. June retail sales rose 1.1% mom and 2.6% yoy versus 0.2% and 1.3% expected. The producer price index meanwhile declined 0.6% versus -0.3% anticipated. Anyway, as investors continue to digest another escalation in the US-China trade war, the data failed to affect the equity markets substantially.
Against this backdrop, the UK’s FTSE 100 sheds 1.65 per cent to 7459, Italy’s FTSE MIB declined by 1.52 per cent to 21,239, France’s CAC 40 plunges by 2.62 per cent to 5,411, while German DAX 30 sheds 2.40 per cent to 11,959. US stock index futures extend losses early on Friday, digesting new threats from Trump. By the way, China said that Beijing would have to take countermeasures if the U.S. was committed to putting more tariffs on Chinese goods.
Meanwhile, EURUSD received a boost from strong retail sales data and turned green in the daily charts. The pair was rejected from daily lows around 1.1070 and is trying to challenge the 1.11 handle. However, the upside potential is limited at this stage as risk-off sentiment prevails and caps the bearish pressure on the greenback. Technically, the common currency needs to firmly get back above the 1.11 level in order to proceed with the current recovery.
USDJPY plunged to lows around 106.78 and looks set to register fresh 2019 lows as yen demand increased immensely after new threats from Trump. The downside risks have intensified dramatically after a break below the 107.00 figure and should the selling pressure in the global financial markets persist in the near term, the pair could extend losses, with the next bearish target comes at 106.30.
In commodities, oil prices lick their wounds after yesterday’s plunge by nearly 7%, to the $60 psychological support. But the recovery momentum looks weak as risk aversion continues globally. Crude oil prices will likely remain around $62 in the short term as investors have been digesting the Trump’s tweet on China, with escalation in the trade war fuels concerns over the outlook for the global economy and global oil demand.
Gold prices are trading marginally lower after yesterday’s rally to highs just below the $1,446 figure. The bullion doesn’t look attractive for buyers at this levels, so the retreat is more of a technical correction amid overbought conditions. In a wider picture, as long as the precious metal remains above the $1,410 intermediate support, downside risks are limited.
Nathan Lambert, Head of Global FX Analytical Department