The on again off again possible global trade war is looking to be back on again as the US and China announced tariffs on each other’s imports. President Trump went ahead with his protectionist commitment and placed $50B worth of tariffs on Chinese goods and the Chinese returned in kind by slapping a 25% levy on US agricultural and auto exports. The markets reacted as expected with US Treasuries rallying, global equities falling across the board and risk currencies getting hit. This looks set to be the main theme that investors will focus on as the week begins with any further escalation in tension adding to the downside risk.
We saw plenty of volatility across the markets last week especially after changes of sentiment from the Fed and ECB and investors will be weighing up the underlying fundamentals against the changes in sentiment that we are seeing with regard to the trade situation as the week progresses.
It’s a relatively quiet start to the week today with a thin data calendar ahead and the Chinese market closed for a bank holiday. However, it looks set to heat up quickly as the week moves on with a plethora of central bank speakers and key meetings for the BoE and SNB as well as the latest OPEC meeting taking place in Vienna to finish things off.