News & Analysis

Stocks fall on new Trade War fears – Steel tariffs EU, Canada, Mexico; Oil drops on US production record; EUR makes it 2 in a row

Jun 1, 2018 | Market Updates

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Trade war fears returned on Thursday, the Trump administration said tariffs on steel and aluminium imports from EU, Canada and Mexico will take effect at midnight Thursday. Mexican stocks also fell, with the iShares MSCI Mexico exchange-traded fund (EWW) sliding 1.1 percent. The iShares MSCI Canada ETF (EWC) pulled back 0.5 percent. The counter-reaction has been swift, this is what lead the losses on European and US exchanges last night.

The EU followed up the U.S. announcement by saying it would impose countermeasures of its own, while Canada Foreign Minister Chrystia Freeland said the country plans to slap dollar-for-dollar tariffs on the U.S. Mexico responded to the measures by saying it would impose tariffs on apples, pork bellies, and flat steel imported from the U.S.

“If you would’ve seen these headlines two to three months ago, the market would be doing much worse,” said John Zaller, chief investment officer at MAI Capital Management. “I think that’s a consequence of the market thinking this is a negotiating tactic.” “Unfortunately, it brings a lot of uncertainty,” he said. “We’d love to see this resolved sooner rather than later.”

Selling started in Europe, one the London was in swing. The Dax saw the brunt leading lower before the FTSE lost ground. The DAX lost 178.87 while the FTSE gave up gains to finish 11.37 points lower. Over the Atlantic, US futures pointed to a small opening gain before selling took hold into the open. The Dow Jones closed 251.94 points lower sellers reclaiming much of Wednesday’s rally. The S&P500 lost 18.74 points and the NASDAQ closed 20.34 points lower.

Markets will be looking to tonight US employment data coming out at 22:30. In Europe, the UK will be releasing its monthly Manufacturing PMI data at 18:30. Day 2 of the G7 meets are running today.

Oil declined overnight ignoring larger than expected decline in crude inventories. U.S. commercial crude inventories fell by 3.6 million barrels in the week to May 25, the Energy Information Administration reported. Analysts had expected a decrease of 525,000 barrels. Offsetting the drop in crude stockpiles, gasoline stocks rose by 534,000 barrels, while distillate stockpiles, which include diesel and heating oil, jumped by 634,000 barrels. U.S. crude oil production also offset the drop as it jumped 215,000 bpd to 10.47 million bpd in March, the highest on record, EIA said on Thursday.

“Domestic production keeps rising, but it may have reached a point where increasing amounts of barrels of crude oil are becoming stranded,” said John Kilduff, a partner at Again Capital LLC in New York.

The EUR backed up Wednesday’s recovery with a second rally, it was far from smooth sailing as both the EURUSD and EURJPY briefly traded in red during last night’s London session Eurozone inflation also helped as it showed an increase for May. Buyers prevailed both pairs adding over 25 pips to the close. Canadian GDP increased to 0.3% giving the CAD a boost before tariff worries sent the CAD lower. The USD ended 83 pips higher to the CAD.

The AUD attempted a breakout but pared gains, settling flat to the USD and slightly lower to the Japanese Yen. The GBP settled flat to the Yen and slightly lower to the USD after giving up a 57 pip rally. Gold started firm hitting 1306.43 but pared gains as sellers took hold. Price ended the session $2.72 lower.

Good trading from Eightcap.

Sources; CNBC All times are AEST

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