European equity markets remain under the selling pressure on Monday as investors continue to monitor developments in the US-China trade relations after the latest round of negotiations failed to bring any progress towards resolving the dispute. After the US hiked its tariffs to 25% on $200 billion worth of Chinese goods, the talks finished without a deal on Friday. However, White House Economic Advisor Larry Kudlow said on Sunday Trump and Xi Jinping are likely to meet at the upcoming June G-20 summit in Japan. Against this backdrop, investors are struggling to find positive catalysts for risk assets at the start of a new trading week as tensions between the two world’s countries persist. Today, the US officials are expected to announce details of their plans to boost tariffs on all remaining imports from China -- some $300 billion in trade.
As such, the UK FTSE 100 loses 0.44 per cent to 7,171, France’s CAC 40 is down 0.85 percent to 5,282, while German DAX 30 adds 1.19 per cent to 11,916. US stock index futures also point to a decent slump at the open, with contracts on the S&P 500, Dow Jones Industrial Average and Nasdaq 100 indexes all tumbled as China announced new tariffs on U.S. goods.
After the news on tariffs from China, the dollar turned substantially lower against the majors. The market reaction was quite aggressive as traders are focused purely on tariff war in the absence of economic data. The Chinese officials said they plan to set import tariffs on $60 billion worth of US goods. The tariffs will range from 5%-25% and will start from June 1. There are also reports that China may stop purchasing US agricultural products and energy, cut Boeing orders and restrict US service trade with China.
As a result, USDJPY moved to new early-February lows around 109.10 and now threatens the 109.00 figure. The increased risk aversion continues to boost the safe-haven Japanese yen, with traders bet on further rally in the currency should the trade tensions escalate further in the coming weeks. A potential break below the 109.00 will open the 108.70 support area. As long as the pair remains below the 110.00 handle, the risks are skewed to the downside.
EURUSD also gained from a broad-based dollar weakness, extending the recovery for a third day in a row despite risk-off sentiment. On Friday, the pair gained from mixed US CPI data. In the recent bullish wave, the euro challenged a strong intermediate resistance around 1.1250 and registered early-May highs at 1.1260. The pair, however, is yet to confirm a break above the mentioned resistance. As there are no any important events and economic reports, traders will continue to find cues from US-China trade relations.
Brent crude accelerated the corrective rebound on Monday, with prices are trying to overcome the $72 barrier amid geopolitical news. Saudi Arabia said that two Saudi oil tankers were among vessels attacked off the coast of the United Arab Emirates, condemning it as an attempt to undermine the security of global crude supplies. As a reminder, Saudi Arabia and the UAE are the largest and third-largest producers, respectively, in the OPEC. On the other hand, concerns over oil demand from China amid the rising trade tensions cap the upside potential in the market.
Nathan Lambert, Head of Global FX Analytical Department