Stocks try shrugging off crazy looking tariffs

The best floor stock markets have found all week is looking shaky

The uptick followed U.S. President Donald Trump’s tweet proclaiming that China’s Vice Premier Liu He is “now coming to the U.S. to make a deal". As such, stocks are taking formal confirmation of USTR plans to raise tariffs to 25% from 10% on Friday in their stride. Presumably, the backstory showing tariff hikes reaching unsustainable levels, is gaining traction. At just short of 8%, the weighted mean of tariff rates levied by the U.S. would be second only to those of Brazil, after Friday’s planned rise. That looks crazy. Such incongruity is one reason markets do not appear to be taking this week’s events as seriously as the last flare up in the trade dispute; at least not yet.

Figure 1: U.S. tariff levels are set to rise above EM rates

Source: Deutsche Bank, Bloomberg, City Index

Markets are telegraphing an expectation that even if tariffs are raised on Friday, they will be lowered relatively quickly, following a deal that Washington and Beijing indicated was close just days ago. This interpretation holds obvious risks. Lack of visibility alone—chiefly into the mind of the U.S. president—suggests volatility could remain heightened till Thursday, at best. That’s the first day of talks scheduled with Premier Liu. At worst, in the event that U.S. tariffs rise, and Beijing goes ahead with its threat to retaliate, a deeper correction of risk assets could be seen.

Thoughts on Dow futures

As noted several times over the last few months, the Dow Jones Industrial Average has been a standout amongst major U.S. indices due to underperformance. With renewed chances that valuation, economic and trade concerns could challenge the global market uptrend anew, Dow’s fault lines could be indicative. Attention remains focused on the cluster of support and resistance ensnaring the Dow between 25246-26696 since late February. Dow’s failure to breach April highs on at least three clear attempts, now looks like a precursor. Yet Tuesday’s sharp selling left the key 78.6% (25773) Fibonacci interval of October-December mayhem intact. If it continues to hold, the risk-averse episode could be short. Still, this week’s swing to ‘risk-off’, has re-established upside challenges. These include 26317, set by November’s ominous long-legged doji. Dow’s cycle high of 26696 is another. The sense that a cohort of the Dow’s select industrial giants could remain a drag on markets’ near-term trajectory well beyond this week, is difficult to shake.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

Contracts for Difference (CFDs) are not available to US residents.

FOREX.com is a trading name of GAIN Capital - FOREX.com Canada Limited, 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA is a member of the Canadian Investment Regulatory Organization and Member of the Canadian Investor Protection Fund. GAIN Capital – FOREX.com Canada Limited is a wholly-owned subsidiary of Stonex Group Inc.

Complaints are taken very seriously at FOREX.com. You can view our complaints procedure here.

Know your advisor