Not a Pretty Picture

The US administration believes they have the upper hand after Q2 economic results and with the President polling well during the Democratic debates, it was only a matter of time before Trump acted on this week’s early warning trade shot that the markets took far too complacently. If there was any doubt that the US-China trade negotiations are drifting further apart this latest trade escalation puts that debate to rest.

Gold

Gold is the big winner from President Trump, adding additional tariffs to China. The increased trade tariffs will all but assure a more aggressive policy response from the Fed while the market re-prices in more cuts into a drooping US yield curve. As yields keep pushing lower, expect gold to continue moving higher.

Oil

It was a rough 24 hours in the oil patch, but with outsized concerns about global waning demand already dampening sentiment the latest round of tariffs have darkened an already clouded outlook for global economic growth and oil demand sending oil markets tumbling lower with Brent suffering its most significant and most agonizing one-day decline in more than three years.

Equities

Global markets instability will manifest its self out of a protracted equities market rout. Indeed owning equities in a trade war laced environment is proving to be a risky business yet again.
Tariff-related risk-off events tend to take on a life of their own and can linger for many weeks so fading the move too early could prove to be a costly exercise in frustration.

Currencies

For now, the JPY is bearing the bulk of the appreciation in currency markets as this cataclysmic risk-off event has sent G-10 traders seeking shelter under Yen’s umbrella as the trade war-related storm continues to build.

This article was written by Stephen Innes, Managing Partner at VM markets LLC