16 Billion Dollar Package
While half the world is anxiously waiting for what will transpire during the next China-USA trade talks, the US has just issued a 25% tax on $16 billion worth of Chinese products. This prompted China to issue their own 25% tax on the same dollar amount of car parts, steel and fuel products. In defense of the new tax, US Secretary of Commerce Wilbur Ross stated that since the US economy is stronger than that of the Chinese, the US has “more bullets”. He added that the Chinese were aware of this too. The question is how many sacrifices does this cowboy attitude require and what is the desired goal it is trying to achieve. Improving the trade balance is hardly achievable as long as the flow of goods decrease on both sides at an equal rate and American companies still need to purchase the majority of their goods from China.
Decreased Volatility and Mixed Results
The new rounds of Chinese taxes and the accusations around President Trump have resulted in timid trading yesterday, with only the NASDAQ showing increase while the rest of the indices have fallen. Asia has shown the same mixed results, but the rate of volatility stayed under 0.5%, which is unusually low considering the moves that have been recorded over the past few months. Hong Kong decreased, and so did the Australian index, while Nikkei and the KOSPI closed +0.2% and +0.4%. Shanghai Composite managed to climb +0.37%.
The dollar has regained some of its value, which resulted in a price fall in the commodities market, namely oil, gold, wheat and soybeans.
AUDUSD
The normally predictable and conservative climate in Australian politics went through some serious turns of events the past few days. First, 10 ministers allegedly resigned, only to continue working the next day. The Minister for Home Affairs is leaving, however his ambitions to become the prime minister are a looming threat to the head of the government. The instability draws more and more political figures into the foray, which makes the situation harder to consolidate. Investors are generally sensitive to such climates, and usually they flee when these conditions exist. The ASX 200 has fallen 100 points, which is almost 2% since the 20th.
The AUD was not able to negate the effects of the political turmoil either. Though the USD got stronger over the past 24 hours, the weakening of the AUD was twice the rate of that of the NZD or EUR. On August 20, the chart shows the end of the hike that started on the 15th and also the crossing of two MACD lines at a high level, which is a strong sell signal. Todays fall has reached the 0.7287 level of importance, the shoulder line of the earlier head and shoulders pattern. The AUD might stay around this level for a few candles, before moving to 0.72. But even if the Australian parties manage to handle the political turmoil, it still would not necessarily mean a reversal for the currency, as the USD’s price hike is overriding individual news releases at the moment. If the price climbs above 0.7382 there might be a chance for the AUD to start a long term increase.
Copper
Copper only had the strength for a short revival. Despite being a commodity that is able to signal the current state of the world economy, at the moment it is suffering under the adverse effects of the USD. While it might be easy to blame copper prices solely on the price of the USD, it is important to note that the Chinese list of products to be taxed contains many copper products. Analysts emphasize that every time a 100 billion dollar’s worth of import taxes are levied, it decreases global trade by 0.5%, which, at the expected level of 4-500 billion dollars might result in a 2-2.5% decrease.
It is obvious that such forecasts will result in a stronger sell attitude on the metal market. This is clearly shown on the copper chart,with the 25% decrease in its price since June. This is a huge fall that will be mirrored in the stock prices of several mining companies in the next earnings season.
Some attempts to reverse the bearish trend are visible, but these attempts are halted at the first resistance. It is clear how the price is decreasing from level to level; each broken support becomes a resistance line after. The same happened to 2.7071, which fell as a support on August 14 and managed to resist a the August 21 hike. The price is at the center of the 2.5555-2.707 range. The strong sell signal might draw in a considerable amount of traders.
Sincerely,
Laszlo | Market Analyst
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