China’s Answer
One day after the US tariffs on Chinese imports went into effect, China raised their own tariffs on 60 billion dollars worth of US products. This new set of 5-10% tariffs fell short of the expected 20-25%, effecting liquefied natural gas and frozen vegetables among other things. Targeting the agricultural sector implies that these Chinese tariffs are politically motivated and Trump has suggested China is attempting to retaliate by punishing the states that voted for him.
Uptrend in Asia
It’s anyone’s guess where the Asian market’s newfound optimism comes from, nonetheless ever since the trade war escalated, Asian investors have been eagerly buying stocks. The Shanghai Composite, Hang Seng and Nikkei all increased by 1% or more by the end of the day. Meanwhile the US dollar’s weakening immediately pushed the prices of precious metals upwards. Platinum rose by 7.5 dollars or approximately 1%. The price of oil is also on the rise, with WTI now being above 70 dollars while Brent is attempting to break the 80 dollar line.
USDJPY
Japan’s base interest rate has been negative since January 2016 and will remain unchanged based on the last interest rate meeting. The Bank of Japan (BoJ) sees a clear and sustainable path to economic growth, so they’ve been supporting it with low interest rates and their asset purchase program. The central bank raised the budget for buying Japanese Exchange-Traded Funds and Real Estate Investment Trusts to 6,000 billion yen per year. They’re also planning to spend an additional 2,200 billion yen on corporate bonds. This massive stimulus program aims to both help keep the yen weak and keep the price of Japanese stocks stable.
The yen continued to weaken against the USD following the BoJ meeting, despite the USD weakening against every other major currency today. Within the rising trend channel we can see two completed price waves and one that’s still ongoing. Based on the length of the previous two cycles, the current cycle is approximately halfway through it’s estimated lifespan. The pair could be affected by an influx of impulse trades following the release of Japan’s inflation figure. Prior experience suggests that day will also mark the completion of the current cycle.
Gold
Gold has been showing signs of potentially turning around instead of continuing to seek new depths, which was a sliver of hope for gold traders. The dollar’s weakening is critical for this to be a possibility in the first place. Attacks on the USD’s role as a clearing and reserve currency have become more frequent in the past few months. Previously such these resulted in gold gaining more investor attention, however, there was a lack of that this time around. It seems that in the age of modern currency markets, gold struggles to stay relevant on the same scale as before. For the banking systems of developed economies, the limited availability of physical gold restricts their ability to use money multipliers. This makes speculative gold the realm of retail investors, while central banks instead aim to reduce their precious metal reserves.
Even so, a large enough number of retail investors can still push price upwards. When below 1200, price seems unable to gather enough momentum to further decline. Meanwhile upsurges have been growing increasingly more intense after the asset’s 1180 low, forming something of a rising trend. This tapered off approximately between 1209 and 1207, making three unsuccessful attempts to break through this range in the past two days. If this break through were to happen, the next line of resistance would be 1217.
Sincerely,
Laszlo | Market Analyst
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