Markets reversed to growth, despite new tariffs on China import

Trump’s administration announced the introduction of 10%-tariffs for Chinese imports to $200 billion. The news had a moderate negative impact on the markets. The dynamics is limited, as the information about these measures appeared on Monday, which took from MSCI about 1% on Monday. We see something like the traditional reaction of the market “buy rumors, sell facts.”

At the same time, we cannot forget about the long-term negative consequences of the world trade problems. It is cautious to expect a response from China that threatened to abandon the planned negotiations with the United States in case of the trade war escalation.

In addition, trade disputes have already led to decline in world trade, which last time happened in 2015 against the backdrop of the collapse of oil quotes, and before that was noticed only in 2008. The reduction is detrimental for the demand for raw materials and energy.

Metal quotes have been losing for the third session in a row. Brent oil lost 3.2%, once again stepping from the important resistance around $80 to the mark on $77.25. Under these circumstances, the current roll back of the markets should be seen as a temporary rollback after a sale earlier, but hardly as an excuse for a sustained growth. The dollar has decreased this week by 0.6%, testing the minimum levels from the first half of July. It is obvious that the dollar is not able to develop the offensive, even though the Fed is moving in full swing to raise the rates in September and December. The weakening of the US currency is also a supporting factor for the markets of developing countries.

The current dollar deviation risks to increase if the dollar index overcomes the level of support at 93.80. No less important level for EURUSD is the mark of 1.17. If the euro succeeds steadily above these marks, the purchase of a single currency can noticeably increase on the investors’ faith in a further rally.

At the same time, the stock markets have not yet developed a certain dynamic: The index of S&P 500 remains below the important level of resistance (2900), although staying in the framework of the last-week growing mini-trend.