News & Analysis

Fresh tariff worries hurt stocks – Apple hits new records; Fed holds rates; Gold closes at new 2018 low; focus moves to Bank of England

Aug 2, 2018 | Market Updates

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18:30 GBP Construction PMI
21:00 GBP BOE Inflation Report – MPC Official Bank Rate Votes – Monetary Policy Summary – Official Bank Rate EXP .75%
21:30 GBP BOE Gov Carney Speaks

A mixed session for U.S stocks, the Dow Jones closed 81.37 lower 3M and Caterpillar leading lower after new trade war fears. Weaker industrials pushed the SP500 2.93 points lower. Apple hit new records which helped the Nasdaq gain 35.50 points.

New hit that the Trump administration is looking at the possibility of slapping a 25% tariff on $200 billion worth of imported Chinese goods — after initially setting them at 10%.

“On trade, it seems like it’s a day-by-day story,” said Mike Baele, managing director at U.S. Bank Wealth Management. “Last week, it was about the de-escalation of trade tensions with Europe.”

“In the short term, the impact of fiscal stimulus and strong economic data will outweigh the impact of tariffs,” Baele said. But if the trade situation escalates, trace could have a more permanent impact on stocks, he said.

The Fed offered no surprises, holding rates and upgraded its view of the economy to strong. “It was basically a non-event,” said Eric Stein, co-director of global income at Eaton Vance. “The market was priced in for this decision. I think the Fed is still on track to raise rates in September.”

ADP and Moody’s Analytics said the private payrolls in the U.S. grew by 219,000 in July, more than the 185,000 gain forecast by Reuters. July’s job gains were the best since February. The 10-year T-note did rise back above 3% post ADP jobs data. It was the first time since June the yield was at 3% as investors renewed bets on a stronger economy and higher inflation.

Europe saw strong falls, buyer confidence hit by new trade developments, the FTSE closed 95.85 pts lower and the DAX fell by 68 points. Automotive stocks led the losses, down 2.37%, basic resources were among the worst performers, off by 1.61%, after reports the Trump administration could slap a 25% tariff on $200 billion of imported Chinese goods. Rio Tinto reported a rise in first-half profit for 2018 of 12% year on year and announced an additional share buyback and dividend hike. Despite the great news, the stock fell over 3%.

U.K. Prime Minister Theresa May is to hold Brexit talks with French President Emmanuel Macron in France on Friday, Downing Street advised.

Oil lost 1.6% as overnight stockpiles showed a surprise increase, the U.S. Energy Information Administration reports crude inventories rose by 3.8 million barrels last week, but gasoline demand remains high. USOUSD closed at 67.20 after testing 66.73 to the downside.

Risk currencies ended mainly lower to the USD after the Fed held rates and advised in its statement “Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee’s symmetric 2% objective over the medium term. Risks to the economic outlook appear roughly balanced.”

The AUD and EUR both finished over 15 pips lower the GBP closed just in the black The USDJPY saw some movement but ended flat to lower. The EUR and AUD saw the biggest falls to the JPY overnight. The AUD was also rattled by lower commodity prices and new trade worries. Gold closed below 1220 for the first time this year, after it lost just $8. Price settled at 1215.78.

After two days of declines, Bitcoin has found buyer interest today, this is important as if this new rally can hold and make a new higher high it could suggest a recovery has started and a new medium-term trend is beginning. Price is trading 279 USD higher at 7678.

The Central Bank spotlight moves to the Bank of England tonight. Traders will be looking to the rate decision (an expected increase to .75%.), the Monetary Policy Summary and BOE Inflation Report.

Good trading from Eightcap.

Sources; CNBC – All times are AEST

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