14
May
14
May

Cryptos Rally, Tariff Announcements by China and the United States

While the dollar continued to trade relatively stable against other major currencies, emerging market currencies like the Chinese yuan (CNH) or the South African rand (ZAR) were again under pressure on Monday. However these currencies stabilized by Tuesday morning and were trading overall stronger against the greenback.

The pound sterling (GBP) continued its series of declines, by now completely erasing the gains from the beginning of the month. The continued uncertainty about Brexit, with the Brexit Party, which is set to get the most votes in the upcoming European election might be affecting the markets. As many are unhappy with the exit deal proposed by Prime Minister Theresa May, the Brexit Party goes as far as to advocate leaving the EU with no deal at all.

High volatility was seen in the oil markets with political developments around the globe having potential to move prices. On one hand there is the escalating trade conflict but on the other hand the situation around the Persian Gulf remains instable after acts of sabotage against four commercial ships near the United Arab Emirates were reported.

Stock markets, in particular technology indices, faced a sharp downturn given the adverse developments on global trade. However by Tuesday morning a small recovery move was seen in futures markets.

For Tuesday business expectations survey data from Germany and EU industrial production data is expected. From the US also business optimism and Redbook Store Sales statistics are due, as well as import and export prices.

EUR/USD

The EUR/USD pair traded almost unchanged on Monday and no significant move could be seen by Tuesday morning, when the German consumer price index (CPI) for April was reported as expected at 2%, which is also slightly above the inflation target of the ECB, which has a policy that inflation should be kept close but below 2 percent.

The further development of the trade conflict between the US and China could also affect currencies, as the different economical expectations might also prompt the Federal Reserve to change its course.

On the topic of trade not only China is seen by the United States as a problem, but also the European Union. US President Trump is expected to announce by Saturday if his administration will levy 25 percent tariffs on European cars exported to the US. The EU in turn is preparing a list of US products that would also face tariffs from the EU as a countermeasure to Trump’s possible approach on this issue.

On Tuesday the German ZEW survey on current conditions and business expectations and EU data on industrial production is expected. From the US side the NFIB Small Business Optimism Index and import and export prices statistics are due to be released.

The EUR/USD chart

Bitcoin

While stock markets were pressured by the further escalation in the trade conflict between the US and China, cryptocurrencies rallied almost like at the end of 2017. The Bitcoin rally continues with the oldest cryptocurrency jumping now above $8,000 per token, which on a weekly basis means close to 40 percent up.

The initial move higher over the past week appeared to help especially Bitcoin, but with the positive sentiment other cryptocurrencies are starting to catch up. Ripple, which is by market capitalization the third biggest cryptocurrency, enjoyed only small gains, while Bitcoin soared higher, however on Thursday night within just four hours it gained by more than 20 percent. It was not entirely clear if the move was related to the announcement by the German stock exchange in Stuttgart to allow trading on Litecoin and Ripple ETNs or related to chart-technical reasons.

The Bitcoin chart

WTI Oil

Significant volatility was seen in the oil markets on Monday, with WTI crude oil prices edging higher above $63 per barrel, before retreating and closing lower. The tense situation between Iran on one hand and the United States and Gulf countries like Saudi Arabia and the UAE could further affect the markets. On Monday reports indicated acts of sabotage against four vessels around the UAE waters with significant damage sustained. While no official statement from the Gulf mentioned any culprit and Iran also condemned the attacks, the WSJ reported that an internal assessment of the situation by US officials pointed towards Iran as a likely responsible party.

While these events in one of the key regions of oil production can scare the markets that supplies could suddenly fall short, on the other hand the trade war between the US and China with its implications to global growth could offset those fears by concerns about global demand for energy commodities.

On Tuesday the American Petroleum Institute (API) will publish weekly crude oil inventories data, followed by the inventory data on crude oil, gasoline and distillates from the Energy Information Administration (EIA) on Wednesday.

The WTI Oil chart

US 500

US stock indices faced significant losses on Monday as the trade war is seen escalating with the Chinese announcing tariffs for now especially targeting the agricultural sector in the US as a countermeasure to the tariffs the United States announced as no trade deal could be made by both governments. In this market sentiment especially chip-companies’ (US Semiconductors ETF -4.48%) stocks closed significantly lower, while banks (US Banks ETF -3.98%) were also affected by the downturn. According to Bloomberg, investors are now counting on the Federal Reserve to cut interest rates this year by at least 25 basis points given the changed situation.

Shares of the ride-hailing company Uber (-10.74%) were in a free fall, with analysts complaining that the stock could not even reach the $45 IPO valuation in the first day of trading, when many expect the interest into the company to help push a stock higher. Competitor Lyft (-5.74%) closed also at yet another all-time low. Both companies are burning a lot of cash to fuel their growth and some analysts are concerned about the prospect of these companies making a lot of money.

Another tech company Slack announced plans for its IPO on June 20. Not all IPOs this year were a failure, with Pinterest and Beyond Meat trading significantly above their respective IPO valuations.

More earnings releases are expected this week from companies like Cisco and Alibaba on Wednesday and Walmart and Nvidia on Thursday.

The US 500 chart

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