The US dollar is mixed in the Asian session with the greenback lower against safe havens JPY and CHF and marginally higher against the CAD, GBP and NZD.
Oil is rebounding from a nightmare session where it lost more than 7 percent after Trump escalated the US-China trade war with threats on higher tariffs. Gold remains bid as investors look for refuge in a rising uncertainty scenario. Stocks are negative as Japan has removed South Korea from its white list as war time reparations continue to sour the relationship between the two nations.
OIL
Oil prices are recovering from some of the losses on Thursday. Crude prices went into a 7 percent freewill after the US President went into a tariff increase of 10 percent on the $300 billion of Chinese goods already at the heart of the US-China trade war.
Global growth estimates have been under pressure from the tariff war and the move by the US erases all the goodwill gained earlier in the week when US negotiators were in Shanghai to kickstart trade talks.
Oil prices have been in retreat ever since the Fed rate cut did not satisfy the market’s appetite for dovish rhetoric. The market is still pricing in multiple rate cuts this year, but given the soft support from the Fed, they would as easily be discounted moving forward.
Supply and demand fundamentals and even Middle East tensions remain in the background, but for now are not driving crude prices. The strength of the dollar and a potential escalation of the US-China trade war are reducing global energy demand forecasts and putting downward pressure on crude prices.
GOLD
Gold rose after US President Trump threatened to increase tariffs on Chinese goods on September 1. The yellow metal has been on the back foot after the less dovish than expected FOMC press conference. Fed Chair Powell did not signal the start of a defined easing monetary policy cycle and markets took the 25 basis points cut as a possible one-and-done.
With markets already on edge after the disappointment by the US central bank, the other shoe dropped with President Trump reversing the hope of a US-China trade deal with his tariff announcement. Trade Representative Lighthizer and Treasury Secretary Mnuchin were in Shanghai to restart trade talks boosting the market’s optimism that a deal was once again in the works.
The tariff threats will have a negative impact on growth forecasts and with other geopolitical uncertainty on the rise have made owning gold more attractive for investors as a safe haven.
STOCKS
Stocks were just recovering from the lack of easing commitment by the Fed on Wednesday when Trump sent the market in a tailspin. So far, the US consumer has been spared from the tariffs on Chinese goods, but as Trump’s threats grow in scope, so does the potential impact higher costs will have to be passed down from American companies.
Ironically the US consumer confidence had rebounded, but with this type of scenario it could plummet and lead to a massive equities sell off. The White House has weaponized tariffs ahead of the 2020 presidential elections and if today’s news about Japan and South Korea are any indication this won’t be an isolated incident.
The long debate about compensation for wartime forced labor resulted in Japan removing South Korea from its trade white list.
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