Yesterday's reaction of financial markets clearly shows which issue is currently the most important for investors and who is the main player on the market. It is Donald Trump and his tariffs decisions, which yesterday afternoon definitely improved the mood of investors, especially on the Wall Street.
The US administration issued a statement yesterday (August 13) in which it announced the next steps in the process of imposing additional tariffs of 10 percent for Chinese products worth around $ 300 billion. On May 17, 2019, a list of products imported from China that would potentially be subject to an additional 10 percent tariff was published. The new tariffs will come into effect on September 1, as President Trump announced.
However, it was agreed that tariffs should be delayed until December 15 for some articles. Products in this group include, for example, mobile phones, laptops, video game consoles, some toys, computer monitors and some elements of footwear and clothing. This information improved sentiment in the markets.
The US stock indices began a sharp rise, oil prices soared to their highest levels since the beginning of the month. The Japanese yen clearly weakened and the USD/JPY exchange rate jumped from 105.00 to 107.00. As a result of the above decision, gold and silver prices fell, and the increase in bond prices stopped.
Nevertheless, the most important question is whether the delay in imposing tariffs on some products will be able to improve sentiment for a long time. It seems rather not, because subsequent data point to a significant deterioration in the global economy.
Industrial production in China was published on August 14. Industrial production increased in July 2019 by 4.8 percent y/y. This was the weakest annual increase in industrial production since February 2002. Reasons: growing trade dispute with the US and weak domestic demand. Moreover, in the second quarter the German economy shrank by 0.1 percent in relation to the first quarter, and this also spoils sentiment in the markets. That is why we do not observe such optimism this morning as we did yesterday afternoon.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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