China Ups The Stakes In The Trade War, Futures Reverse Early Gains, Geopolitics Dampens Global Sentiment

Futures reverse early gains after China escalates the trade war with new tariffs, Jerome Powell’s speech to the Jackson Hole Symposium is still a threat to market sentiment.
Thomas Hughes

The U.S. Futures Fall After China Ups Trade War Stakes

The U.S. futures were up in early premarket trading on Friday but quickly reversed course when China upped the ante in the Trade War. China announced it would impose new tariffs on another $75 million worth of U.S. goods. The new list of items includes autos among other things. The Dow Jones Industrial Average, up 0.30% in early trading, quickly shed the gains and gave up an equal amount to boot. The S&P 500 and NASDAQ Composite both posted similar performance, action was led by the tech-heavy and globally-exposed NASDAQ Composite.

In other news, traders are anxiously awaiting a speech from Fed Chief Jerome Powell. Powell is delivering the opening remarks at the Fed’s Jackson Hole Symposium. There are a lot of hopes resting on his shoulders. The market is expecting him to confirm deeper rate cuts are coming if not the full extent of the FOMC’s plans. I caution traders not to expect too much, Powell is unlikely to reveal more about the FOMC’s plans than has been already stated in the Policy and Minutes.

The U.S. yield curve is flat and positive if only slightly so. The spread between the two and ten-year is microscopic and reveals a market on edge. The bond market is signaling a high expectation for decisive action in staving off a feared recession. If Powell’s statements are not strong enough the curve could go into full-inversion. Recent data including the Leading Indicators suggest the economy is not only stabilizing it has begun to expand again. New Home Sales will be released today at 10AM.

EU Markets Fall After China Raises Tariffs

The EU markets were optimistic in early trading, posting moderate gains across the board, but gave those gains up after China announced new tariffs. The DAX had been up 0.38% but turned negative posting a loss near -0.38% at midday. The CAC is also down about -0.38% at midday, the UK FTSE is still showing a small gain of 0.15%.

In Brexit news, Boris Johnson continues to receive tantalizing support from EU leaders but no change to the Iris Backstop has been offered. In today’s news, French President Macron said amendments can be made but the backstop is non-negotiable. Boris Johnson, the UK’s newly elected PM, is in a tough situation with a G7 meeting happening tomorrow. On one hand, he is tasked with maintaining favorable relations with the EU while exiting the said union, on the other, it looks increasing likely there will be a hard-Brexit and closer ties with the U.S.

Asian Markets Are Mostly Higher

The Asian markets closed mostly higher on Friday despite signs China would increase tariffs on U.S. goods. Early in the session ministers at China’s Trade Ministry said there was no choice but to retaliate, a little later the China Global Times editor reported he’d heard new tariffs were coming. The Nikkei, Shanghai, and Hang Seng all closed with gains near 0.50% while the ASX rose only 0.33% and Kospi fell -0.14%.

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