China Strikes Back on Trade, Risk Aversion Reigns as Investors Buckle up Their SeatbeltsCaution and growing unease sum up the atmosphere for financial markets as investors buckle up their seatbelts and prepare for more twists and turn to come in response to escalating tensions between the world’s two largest economies, and the negative repercussions this will have on global sentiment.
On Monday, Beijing wasted no time in retaliating against Trump’s tariff hike, by unveiling tariffs of up to 25% on about $60 billion worth of US goods. With the US Trade Representative’s office releasing a list of about $300 billion worth of Chinese goods that could be hit with a 25% tariff after Beijing’s announcement, trade war fears are stepping into levels that we have not seen before.
Expect trade war fears to remain a major theme denting investor confidence. The lack of appetite for risk has been reflected across Asian markets this morning with stocks flashing red as of writing. European shares are looking to trade lower as the risk-off vibe from Asian markets encourages investors to maintain a safe distance from riskier assets while pursuing safe-haven investments. The Yen has given back some of its recent gains, but it is still the preferred asset of choice for currency traders.
Trump says he will meet China’s Xi Jinping, but are markets listening?
President Donald Trump has said he will meet President Xi Jinping at the G20 summit in late June. However, given the constant twist, turns and numerous disappointments over trade talks, this statement could well fall on deaf ears.
Markets are likely to take Trump’s words with a few pinches of salt, given the many situations in the past which have not resulted in the easing of trade tensions between the United States and China.
Gold to remain the star of the show
Gold has experienced an incredible appreciation early this week with prices sprinting towards the psychological $1300 level as risk aversion sent investors rushing to safe-haven assets. Appetite for the precious metal is set to remain robust amid market fears over sizzling trade tensions negatively impacting global economic growth.
In regards to the technical picture, Gold is turning bullish on the daily charts as prices have broken above the previous higher low at $1290. A solid breakout and daily close above $1300 is likely to encourage a move higher towards $1310 and $1324, respectively.
Commodity spotlight – WTI Oil
Oil bulls look exhausted and ready for early retirement this quarter, and this continues to be reflected in price action. Brent futures have fallen by some 6 percent since the year-to-date high of $74.75/bbl on April 25 to now remain mostly stuck around the $70/bbl floor.
Bulls are struggling to find any support from geopolitical risks in the Middle East, supply disruptions in Nigeria, Venezuela and OPEC-led supply cuts. Growing uncertainty over US-China trade developments have clearly clouded the global demand outlook for Oil and this continues to weigh on prices.
All eyes will be on this week’s OPEC+ committee meeting in Jeddah which investors will be scrutinizing for fresh clues about the future of the OPEC+ production cut campaign. Will OPEC agree to reduce or eliminate the production cuts in June? This is a question on the minds of many investors.
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