The U.S Hits China with a Tariff Hike as Negotiations Continue

It was a bearish day across the European equity markets on Thursday, with the majors ending the day with heavy losses.

There was a greater sense of calm in the U.S markets, however, with the Dow falling by just 0.54%.

Trade talks on Thursday yielded very little for the markets to consider. Optimism came from confirmation that talks would continue into a 2nd day.

Through the early hours of this morning, tariffs on $200bn worth of Chinese goods were officially raised from 10% to 25%.

Companies may have been able to stomach a 10% increase and avoid passing on the increase in prices. 25% tariffs is an altogether different proposition, however.

There’s been plenty of debate over the effects of an extended trade war on the global economy. While the U.S President looks to justify his position by attempting to assure that the U.S economy will remain resilient, there have been plenty of cracks to raise doubts on whether the economy could support 25% tariffs.

Once companies passed on the increased costs to consumers, a key contributor to the U.S economy could begin to slide. Labor market conditions may be robust, but wage growth hasn’t been spectacular…

The Day Ahead

China’s been quick to retaliate to U.S tariffs in the past. As negotiations continue, Vice President Liu He will be looking for an agreement to remove the tariffs in the very near-term.

It remains to be seen whether the Chinese will change tact in today’s talks, however.

Trump will be hoping for a softer approach from the Chinese, but with Beijing mindful of the optics back home, they’re unlikely to take too soft a stance on U.S demands…

At the time of writing, the CSI300 and Hang Seng managed to claw back some of this week’s losses. The pair were up by 1.86% and by 0.64% respectively.

For the U.S majors, it was back into the red for the futures. The Dow Mini was down by 113 points, with the NASDAQ down by 52.5 points. Sentiment has deteriorated as the morning has worn on. The Dow had been up by as much as 114 points before hitting reverse.

In the FX markets, the Aussie and Kiwi Dollar saw strong gains from earlier in the day reverse. The Aussie Dollar was down 0.03% to $0.6987, with the Kiwi Dollar down 0.03% to $0.6589.

Unsurprisingly, the Japanese Yan recovered from early losses, up by 0.05% to ¥109.68.

The markets had hoped that the U.S administration would hold back from hiking tariffs today… Expect more swings later in the day as the markets receive progress from the U.S administration and Beijing on trade talks.