Markets are Riding the Tariff ‘Rollercoaster’

So, whilst markets were given a reprieve by the pause of tariffs on Canada and Mexico, the trade dramas are by no means yet finished, with the US and China now exchanging protectionist trade measures with each other. China has responded to the additional 10% tariff applied to its imports into the US with a 15% tariff on US LNG (Liquified Natural Gas), and coal, and 10% tariffs on select other US items including crude oil.

The EU also appears to be in President Trump’s sights as the next target on his tariff ‘hit list’, after he pointed out the large trade deficit the US has with the European Union. We are not yet sure where the finish line will be for the trade wars which are taking place. In the meantime, financial markets will be left to ride the Trump tariff ‘rollercoaster’, with all its ups and downs as threats, countermeasures, negotiations and concessions take place.

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With markets anxious about the ongoing trade wars, gold has achieved a new record high at circa the $2845 level. Safe haven flows and inflation fears have pushed the precious metal higher, while the pullback in the Dollar Index (DXY) following the tariff pause on Mexico and Canada added to gold’s attractiveness as it became relatively cheaper to buy for non-USD holders due to exchange rate moves. Support awaits at $2790 followed by $2754, while resistance at $2854 would need to be cleared to open up a possible run at $2875. The combination of trade war anxiety and inflation concerns should keep gold well supported however any renewed strength from the USD (which could stem from further tariff measures) may act as a headwind.

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Looking ahead, it’s a big week for US data with Non-Farm Payrolls (NFP) figures due for their monthly release on Friday. Last time around, the NFP release produced a large beat to the upside with 256k jobs created. For January, the consensus forecast is that approximately 155k jobs will have been created. However, if the actual result is closer to 200k or even above this would likely push out the timeline for when the Federal Reserve could look to cut interest rates again, a scenario which could be bullish for the USD and treasury yields. So, while markets will continue to react to the latest tariff developments, the US jobs market will return to focus at the backend of the week.

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