As the trade war between the world’s two largest economies continues to escalate, European market slumped further on Monday. Over the weekend, China has criticized the US’s trade war policy and President Donald Trump confirmed his intention to impose new tariffs on Mexican goods, which fueled risk aversion across the board. In a white paper, Beijing slammed Trump’s trade war policy, accusing the US of “intimidation and coercion” and criticized the country for blacklisting Chinese firms such as Huawei. In response to measures against Huawei, the Chinese regulators launched a probe on US delivery services giant FedEx after it received “complaints from users.
Against this backdrop, the UK’s FTSE 100 loses 0.38 per cent to 7134, Italy’s FTSE MIB declines by 0.40 per cent to 19,722, France’s CAC 40 is down 0.26 percent to 5,194, while German DAX 30 loses 0.38 per cent to 11,682. US stock index futures are also tumbling amid further escalation in the trade wars.
The European currencies are marginally higher against the greenback on Monday, partly as traders start to price in a possible Fed rate cut amid the rising risks for the economy from the ongoing trade wars between Washington and its trade partners. EURUSD still struggles to challenge the 1.12 figure after the European manufacturing PMIs came in line with expectations and failed to affect the short-term direction in the single currency. As long as the euro remains under this level, downside risks prevail, especially as risk aversion persists, capping demand for the European currency.
USDJPY refreshed lows on Monday marginally above the 108.00 figure and has settled around 108.30 since then. Despite the recent selling pressure has eased, downside impetus could resume at any moment, and the 108.00 mark remains at risk. The Japanese yen demand continues to prevail amid a massive risk aversion as Trump’s trade policy is getting more aggressive. By the way, the Trump administration announced Friday that it’s ending special trade treatment for India, removing a status that exempts billions of dollars of the country’s products from US tariffs. In the short term, USDJPY could make some recovery attempts in the absence of fresh news from the US. Technically, the immediate upside target comes at 108.70 and then around 109.00.
Brent crude turned into a recovery mode after a brief dip below the $61 handle. The barrel turned positive on the day and registered daily highs around $62.70. The recovery was helped by the statement by Saudi Arabia which indicated that the group of oil producers together with Russia would continue managing global crude supplies to avoid a surplus. On the other hand, the bullish perspective in the short term is limited as the escalating trade war of the United States with China, the European Union and Mexico will cap price gains ahead of the OPEC+ meeting.
Nathan Lambert, Head of Global FX Analytical Department