James Hyerczyk
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Global Stocks Fall

Concerns over a potential trade war between the U.S. and its major trading partners in Canada, the European Union and China are pressuring global equity markets on Monday. Traders are reacting to retaliatory events and the imposition of fresh tariffs at the end of the week.

On Friday, Canada’s foreign minister announced that Ottawa plans to impose about $12.6 billion worth of retaliatory tariffs on U.S. goods on July 1.

According to Foreign Minister Chrystia Freeland, Canada is working closely with the European Union and Mexico to take on the U.S. economic machine. “We will not escalate, and we will not back down,” Freeland said.

Also on Friday, the European Union enacted tariffs Friday on more than $3 billion worth of U.S. goods including bourbon, yachts and motorcycles.

Earlier on Monday, the Financial Times reported that the EU could slap the United States with a new round of retaliatory tariffs worth as much as $300 billion.

In a written statement to the U.S. Department of Commerce, the EU set out clear plans to respond to potential U.S. duties on European cars. According to the Financial Times, European leaders are getting more convinced that President Donald Trump will put new tariffs on European cars.

Last month, Mexico imposed retaliatory tariffs on June 15, and some European Union tariffs took effect on June 22.

All of these moves are just precursors to the July 6 deadline when Washington is due to impose $34 billion of tariffs on Chinese exports.

We’re going to continue to see reactions and counter-trend reactions in the U.S. stock markets because the direct economic damage from the tariffs imposed on the U.S. appears to be relatively contained, at least for now.

However, stock markets in Asia and Europe are likely to start feeling selling pressure now. China’s Shanghai Composite is now in a bear market. The German Dax may have given a big sell signal earlier today with pressure coming from tariff concerns and concerns over the stability of the German government.

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Bigger Concern for Crude Bulls is Demand Not Supply Issues

WTI and Brent crude oil futures are mounting a strong intraday comeback on Monday after opening lower. The early selling was expected because any talk of increased production like we saw over the week-end tends to drive prices lower. In this case, after a prolonged rally to a multi-year high, some weaker longs may have been looking for any excuse to book profits.

Today’s price action suggests bullish traders were not too shaken by the impromptu agreement between President Trump and Saudi Arabia to raise production. I think they realize it is going to take time to move the additional oil into the market. In the meantime, prices are still being supported by supply issues with Venezuela, Canada, and Libya along with looming sanctions on Iran.

So while the expected increase in production from the Saudi’s will likely happen at some time down the road, the story is not likely to have much of an impact on prices until an actual figure or timetable for the increased output is revealed.

In the meantime, the bigger issue is demand. Supply can be manipulated and controlled, but demand is a little more difficult to control. Crude oil traders should pay more attention to demand headlines over the near-term especially if the tariffs start to cause economic damage in China.

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