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Escalating trade feuds keep markets nervous

June 4, 2019 Business News No Comments Email Email

By Edward Moya

A new month, possibly another chance for world leaders to hit the reset button on trade talks after US stocks endured the worst May performance since 2010.

The US-China trade war saw constructive talks in early May quickly disappear after both sides could not agree on what was expected to be the final touches for a historic trade deal.

Over the weekend, China released a government policy paper on trade issues with the US. The white paper suggested a willingness to return to negotiations, however it was also highly critical of the Trump administration’s tactics, blaming them for the talks falling apart. China is trying to get the negotiations back on track, but they will not make the first move. They are methodically announcing their retaliatory measures and that will be what markets pay close attention to early this week. Most recently, China opened a probe against FedEx for wrongful deliveries of items, possibly targeting packages that were supposed to arrive at Huawei.

Last week, the treasury market rally got out of control as growth concerns raised the recessionary worries. The straw that broke back of global yields was the tariff announcement on Mexico. The southern neighbour to the US also quickly announced their retaliatory measures, in what seems to be the never-ending game of tariff tag.

The Trump administration also announced on Friday that the US will end their special trade treatment for India, eliminating their designation as a developing nation. Approximately, 2,000 Indian products will lose their duty-free status on 5 June. The trade relationship with India has been becoming tense, especially after the US imposed tariffs on steel and aluminium. India is expected to retaliate further on US farm goods.


Markets remain focused on trade updates and until we see any meaningful progress, safe-havens will be bought on any dips. China is blaming the US for the breakdown in negotiations, and while they are open to resuming talks, it will be difficult to see the US move from their hard stance.

Global Recession

With last week’s tariff escalation game of tag spreading across the globe, analysts are growing more concerned we could see a global recession by the middle of next year if the US impose additional tariffs on China and Mexico. In what was supposed to be a period of calm, with world leaders putting the final touches to both the US-Sino deal and the USMCA, and while talks would begin to outline deals between the US and Europe, we have seen tariff escalation globally that looks to threaten the prospects of any deals being done anytime soon. The threats to global growth seem to be here to stay as markets appear convinced the new normal will be constant trade negotiations around d the world. Instead of focusing on one trade deal at a time, the US has overplayed its dominant hand and appears vulnerable to only finalising temporary solutions. The Chinese have put the ball in US hands and need to offer an olive branch before things get even uglier.


The month of May was a disaster for crude prices – the worst May performance in seven years – as the escalation of the global trade war saw the global growth outlook crumble. Oil prices have now given up the lion’s share of the effects of the OPEC+ production cuts. Geopolitical risks remain in place but right now demand growth is in free fall and oil remains vulnerable. The US-China feud remains most critical to the global growth outlook, but the addition of trade tensions between the US and Mexico raised the slower demand picture for the Americas. WTI’s selloff is now around 20% lower from the 23 April high of USD66.60. With rising expectations that OPEC will be less effective in signalling continued production cuts going forward, crude will need to rely on some positive outcomes on the trade front for prices to begin stabilising.

While expectations are low for Russia to agree on an extension of production cuts with OPEC and allies, they delivered a full month of compliance, but that was mainly due to the impact of halted shipments caused by the contamination of the Druzhba pipeline. Russia is still trying to reach an agreement with Poland regarding Druzhba supplies on Monday, which should help normalise their numbers in June.


Gold finally behaved like a safe haven last week, breaking out higher after the trade war escalation led to a code red for global growth. A devastating month for equities – the worst one since December – and other risk assets saw a global bond rally lead the way for safe-haven assets. The yellow metal is once again becoming an attractive safe haven as markets anticipate the fallout caused by recent escalations with Mexico and India.

Melinda Earsdon Melinda Earsdon
Global Head of Public Relations at OANDA

+65 9109 4944

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