Trade Tensions Reach Dangerous Heights As Trump Retaliates Against China

US President Donald Trump wasted no time in counterpunching against retaliatory tariffs announced by Beijing, vowing to hike US tariffs on $250 billion of Chinese imports from 25% to 30% starting on 1 October. He also said planned tariffs on the remaining $300 billion worth of Chinese goods due to start on September 1 will now be 15% instead of 10%. With the President also demanding US businesses to “immediately start looking for an alternative to China”, things are geting very messy on the US-China trade front.

The latest twists and turns in the trade saga will certainly raise concerns over sizzling tensions between the worlds two largest economies threatening global growth and stability. Investors will most likely enter the trading week avoiding world equities and riskier assets while rushing to safe-haven assets such as Gold and the Japanese Yen as risk aversion intensifies. King Dollar is also positioned to benefit from the safe-haven flows and trade uncertainty accelerates the flight to safety.

Federal Reserve Chairman Jerome Powell’s speech at Jackson hole was a big disappointment as he offered no clear hints on future rate cuts. However, markets are still pricing in a US rate cut in September. This certainly raises the question of whether the central bank is data-dependent or more influenced by trade tensions when it comes to monetary policy easing.

Market players should fasten their seat belts and prepare for more action in the week ahead as US-China trade tensions, Brexit, global growth concerns, developments in Europe and depressed oil prices drive market sentiment.

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