Pre-Market: Trade War Re-Escalates as US Announces New Tariffs

The US authorities fired another shot in the tit-for-tat trade war with China overnight, when Trump announced a planned 10% tariff on $200 billion of products. The announcement sparked a sharp reversal after yesterday’s rally, with Asian and European equities feeling the pain more once again.

DAX, 4-Hour Chart Analysis

The trade war trends, depreciating Chinese Yuan, falling Chinese equities and industrial commodities, and a rallying Dollar, are back “on” today, with US stocks still outperforming most of their global peers according to futures markets.

The divergences are actually widening between the major benchmarks, as today, European and Asian stocks are down by over 1%, while even the largest daily US loser, the Nasdaq is down by less than 1% in pre-market trading.

S&P 500, 4-Hour Chart Analysis

From a technical standpoint, the S&P 500 is in a clear long-term uptrend although the range that developed after the February crash is still intact, with the upper boundary found just above the 2800 level that the key benchmark got close to yesterday.

The all-time high is ahead at near 2875, some 4% above the current level, and despite the strong global divergences and the lofty valuations, a rally to test the highs is possible in the coming weeks, but those with a longer-term investment horizon should stay away from US equities here.

The economic calendar was virtually empty in Asia and Europe today, while the US PPI came in slightly above the consensus estimate before tomorrow’s key CPI index. Treasury yields are lower across the yield curve, with some notable flattening thanks to the trade war escalation, with long-dated treasuries still seeing strong demand despite the ongoing rate hike cycle of the Fed.

Dollar Bounces Back after Correction

USD/Yuan, 4-Hour Chart Analysis

The Us Dollar is getting close to is one-year high against the Yuan after the intervention-triggered correction, and with the Turkish Lira and the Brazilian Real also under pressure today, another leg of the emerging market currency crisis could be ahead.

Risk-on currencies are broadly lower, with the Aussie quickly reversing most of its recent correction, and the New Zealand Dollar and the Canadian Dollar also edging lower before the Bank of Canada’s interest rate decision, which will be announced just after the Wall Street open.

Copper Futures, Daily Chart Analysis

Commodities were hit by the early strength in the Dollar with losses across the board in the segment. Crude oil retreated off yesterday’s rally highs, gold dipped below $1250 again, while the rout in copper continued. The metal hit another 12-month low and got close to the key support zone near 2.725 that is a good candidate for a more durable bounce after the 20% decline.

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.