Tariff Worries Fade Away

Daily Analysis - 06/03/2018

Investor Nerves relax and Market Recover


Global Stocks recover as the Trade War is seen more as a diplomatic tool for Trump’s trade negotiations calming investors nerves.

Dow closes 336 points higher as trade-war worries ease

Stocks rose on Monday, erasing earlier losses, as worries about a potential trade war look like they are fading away.

The Dow Jones industrial average closed 336 points higher at 24,874. Caterpillar rose 3.2% being the biggest gainer component of the Dow. The S&P 500 rose 1.1% to 2,720.94 after briefly trading lower, with utilities as the best-performing sector. Harley-Davidson, a closely watched stock amid the tariff news from the European Union and/or any other countries, rose 2.4%. The tech-heavy index, Nasdaq composite advanced 1% to close at 7,330.

Comments from analysts regarding the Caterpillar and Harley-Davidson gains could draw some conclusions that the trade conflicts have a diplomatic end. President Donald Trump's comments on NAFTA yesterday also showed some flexibility from his side as Trump appeared to be opening the door for negotiations on tariffs.

Last week Trump announced the U.S. will impose 25% tariff on steel imports and a 10% tariff on aluminum imports. Trump’s comments sparked fears of a potential global trade war as world leaders considered the announcement. The European Union responded by saying that Harley-Davidson bikes and other U.S. products could be included in their new tariff plans.


US Dollar rebounds

Donald Trump’s announcement of his plan over steel and aluminum tariffs spur concerns about a trade war. Last week the markets sent the US Dollar to 16-month lows against the safe-haven yen. Trump has gone from saying on Friday that "trade wars are good, and easy to win", to a more moderate phrase on Monday “I don't think you are going to have a trade war.”

However, many market participants believe Trump’s proposed tariffs could act more as a negotiating tactic than a hard policy proposal. The Canadian dollar hit an eight-month low of 1.3002 per U.S. dollar as Trump could use the proposed tariffs as a bargaining tool in talks to reestablish NAFTA. The US dollar gained some ground on Monday against the yen, though it is still too early to suggest that a downtrend seen over the past couple of months had come to an end as there are no signs for a trend reversal yet. The USDJPY held steady on the day at 106.22. On Monday, it had gained 0.4%, edging away from the 16-month bottom of 105.24 that was set on Friday.

Bank of Japan Governor Haruhiko Kuroda said today, Tuesday, downside risks to the central bank’s projection that inflation would reach its 2% target around the fiscal year ending in March 2020 still remain on the horizon, though the JPY showed limited reaction to his comments.

Kuroda highlighted on Friday, for the first time, the prospect of an exit from accommodative policy if inflation reaches the target.


Crude Oil gains as Robust Demand is Expected

WTI and Brent oil futures rose on Tuesday for a third consecutive trading session, supported by strong demand forecasts. Ministers from OPEC also highlighted the importance of the agreement to cut output to boost prices.

According to the International Energy Agency (IEA) on Monday, it was stated that the global demand for oil was expected to grow over the next five years, while output from OPEC producers - Organization of the Petroleum Exporting Countries - would rise at a much slower pace.

The IEA said the gap between OPEC and global demand could be covered from the United States supply as its shale oil production was set to surge.

U.S. crude production has risen above 10 million barrels per day (bpd), overtaking top exporter Saudi Arabia. Output hit a record 10.057 million bpd in November, according to the U.S. Department of Energy.

OPEC Secretary General Mohammed Barkindo said at a conference in Houston that the OPEC’s supply cut agreement with global producers is “as solid as the Rock of Gibraltar”.

U.S. crude inventories were expected to rise by 3 million barrels in the week to March 2, a second straight week increase.

The American Petroleum Institute (API) is set to release its inventory data at 21:30 GMT on Tuesday, and the U.S. Energy Department’s Energy Information Administration (EIA) is scheduled to report its data at 15:30 GMT on Wednesday.


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