LCG Research: Markets react as “Tariff man” fires another shot.

 

Stocks in Asia dropped overnight whilst European and US futures are set for a negative open as the bad news kept on rolling. May has been a tough month for the markets. There is still more news to digest before traders can put this difficult month behind them. Risk aversion is on the up and the flight to safety is in play for the umpteenth time over the past 30 days.

They say bad news comes in three’s; China confirmed that it is ready to restrict rare earth minerals should the trade dispute with the US escalate further. Secondly Chinese manufacturing activity slipped into contraction as the impact of the latest round of Tramp’s tariffs is felt and thirdly Trump threatened to place escalating export tariffs on Mexico if it failed to bring illegal immigration under control.

Trump threatens Mexico with tariffs

When Trump delayed a tariff decision on European cars, it was assumed that he was only prepared to fight one trade war at a time. Perhaps Trump is more of a keep all your trade war options open kind of guy. The self-proclaimed Tarff man has threatened to slap 5% tariffs on June 10th on all Mexican imports, rising to 25% in October, unless the Mexican government halts illegal immigrants into the US.

Trump is going all out here. The move to start a trade war on another front has shaken sentiment in an already fragile market. The Mexican peso fell 2% hitting a two-month low of 19.5950 whilst the safe have Japanese yen moved higher versus the dollar.

China ready to restrict rare earth exports to US

The bad news didn’t stop there. China stands ready to restrict rare earths exports to the US should the US – China trade dispute deepen. China produce around 80% of the worlds rare earth materials and an even larger proportion of the material in a processed form. The use of rare earths is widespread – from mobile screens, TV’s, to applications for cancer treatments and earthquake monitoring. The significance of this threat is huge and represents a new aggressive posture from China in negotiations.

Chinese manufacturing pmi slips below 50

Chinese manufacturing activity contracted in May. The manufacturing pmi slipped to a worse than expected 49.4. This was the first insight on the impact of the tariff increase by Trump earlier in May and it doesn’t look good. China’s manufacturing sector is clearly being hit by US tariffs. This is heightening concerns over a global growth slowdown. Miners could have a rough run today.

Gold shoots higher

Today’s triple hit of bad news has proved too much for investors to stomach. US futures are tanking and gold has shot up, breaking through resistance at 1286 as it targets 1300. The market is starting to price in things getting worse before they get any better.

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Jasper delivers regular commentary, seminars and webinars on market news, trading analysis, strategy and psychology. He is regularly interviewed by BBC News, Bloomberg, CNBC and Sky News, and has featured in The Times, Guardian and Daily Telegraph. Jasper hosts a weekly charting analysis webinar. He is qualified as a Chartered Market Technician (CMT) with the Market Technician Association, and has a degree in Finance and Economics.