The intensifying trade tensions between the United States and China simply added to market jitters, consequently weighing heavily on emerging markets. While the prospect of higher U.S. interest rates is likely to stimulate fears of capital outflows from emerging markets, global trade concerns present a major risk.
The anticipation of a drastic shift in OPEC’s mindset is quite puzzling to most when you consider that the previous theme heading into meetings was how much production output could possibly be cut from the market. This focus has suddenly been replaced with anxiety over how much supply could potentially be added back into the market.
Risk-off sentiment is sweeping through global markets after U.S. President Trump fired back at China last night. He instructed the U.S trade representative to identify $200 billion worth of Chinese goods to impose a 10% tariff. Crude oil recovered very well yesterday as speculation mounted that OPEC will only raise production 300,000 to 600,000 bpd. However, this morning, crude oil is a casualty of the risk-off, trade war fears.
Trade war fears are escalating after President Donald Trump hit back against the Chinese by asking his administration to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10%. This came after markets started to shake off concerns about the United States imposing a 25% tariff on up to $50 billion of Chinese products.
On Friday, the White House announced 25% tariffs on $50 billion worth of Chinese goods. As promised, China quickly retaliated imposing 25% tariffs on $50 billion worth of U.S goods. They plan to introduce these tariffs in two phases.
Crude oil prices got hit hard as the trade war for oil traders got personal. In a tit for tat, the Chinese government announced tariffs on U.S. oil imports as well as other energy products, in a sector that U.S. President Donald Trump promised to make great again. This along with the fact that most people believe that OPEC and Russia will decide to increase oil output even after reports that Bloomberg says that Iran, Iraq and Venezuela will veto the increase.
The U.S. dollar gained against all major pairs this week. A hawkish Fed and a dovish European Central Bank (ECB) gave the edge to the American currency. U.S. President Donald Trump scored diplomacy points in Singapore by meeting with North Korean leader Kim. Trade war fears were once again at the forefront as the Trump administration announced new tariffs on Chinese goods on Friday. Crude oil prices plunged as supply might be on the rise with heavy anticipation on the Organization of the Petroleum Exporting Countries meeting on Friday.
The coming week (June 18-22) should continue the trend of trending symbols. The only potential exceptions are gold and soybeans whose weekly pivots are sideways for reversal scalpers and who already made a wide-range move likely to consolidate sideways. However, both gold and beans have trending monthly pivots--a wild card working against my Iron Condor favorite trade.
This week has all been about major central bank meetings and as we had anticipated last week, it was indeed the European Central Bank that caused the most market impact with its decision. The euro/U.S. dollar (EUR/USD) currency pair almost fell 300 pips from its high on Thursday and European stocks rallied sharply after the ECB indicated that interest rates won’t rise until at least mid-2019, even if asset purchases were going to finish at the end of December.
As Russia smoked Saudi Arabia in the World Cup, crude oil ministers from those two countries signaled that indeed OPEC and Non-OPEC countries will be raising oil output. Saudi Arabia’s oil minister said it is “inevitable” that OPEC and Russian production will rise by what he says is a "reasonable and moderate" amount. T