Trade Wars and Tech Sell-Off Continues to Weigh

Futures Pare Losses But Concerns Remain

The second quarter got off to a rough start on Monday, with trade war fears and declining tech stocks taking their toll on investor sentiment, but we are seeing a small rebound ahead of the open on Wall Street.

US futures are up to half a percentage point higher on Tuesday, but this pales in comparison to the losses recorded on Monday and reflects ongoing weakness in stocks. Donald Trump’s attacks on Amazon over the weekend put the spotlight back on the tech sector, as it tries to recover from the Facebook data scandal that threatens more regulation. Pressure on the sector doesn’t appear to be going away in the near-term which will continue to act as a drag on indices.

The threat of a trade war between the US and China is also weighing heavily on market sentiment and isn’t showing any sign of easing up. China’s decision to slap tariffs of up to 25% on 128 US products, while only amounting to around $3 billion of exports, has inflamed the situation and will likely lead to further counter-measures. Trump has already made plans for tariff’s on another $60 billion of Chinese exports, which will likely trigger another response from Beijing and further weigh on markets.

DAX Slides as Chinese Tariffs Unnerve Investors

How Long Will Trump Persist With Confrontational Approach?

This comes against a backdrop of strong global economic growth and is seen by many as an unnecessary risk to it. Still, the stock market has performed very well since Trump’s election victory and the economy is very healthy. The President appears to be utilising the opportunity to deliver on some of the more hostile aspects of his campaign that threatens both in the near-term.

Should this become a prolonged venture and the stock market and economy begin the suffer at the expense of it, I would expect Trump to take a step back from such a confrontational approach and explore alternative avenues. As it is, the approach falls very much in line with his campaign and may sit very well with his core voter base, particularly if it delivers results.

Dollar at a Crossroads on Trade Worries

US Jobs Report Key in Otherwise Quiet Week

For now, however, we may have to become accustomed to jittery markets, volatility and sudden dashes for safe havens which could see Gold and the yen remain well supported.

Gold Daily Chart

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US 10-year Treasuries have also been another notable source of safe haven flows, with yields having dropped off after testing 3% for much of March. The next test for US yields may come from Friday’s jobs report as we get the latest employment and earnings figures.

Prior to that it may be a slightly quieter week on the data front. Tuesday has little to offer on the data side while on Wednesday we’ll get the latest surveys on the services sector as well as the ADP employment number. The only event of note today will be a speech from Lael Brainard, a permanent voter on the FOMC who has previously very much stuck to the Fed line of gradual rate hikes being warranted.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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