Markets caught in trade conflict between US and China

Market report Michael Blumenroth – 06.04.2018

Weekly market report

In the past few days, neither central banks’ monetary policy nor other events had much of an impact on the markets. In fact, markets moved in line with the news and opinions surrounding the trade conflict between the US and China.

It seems difficult to predict how this situation will develop further. On Tuesday and Wednesday morning, investors were pessimistic following the US government’s statement that it would impose US$ 50 billion of tariffs on Chinese goods. China responded on Wednesday morning, saying it would, in turn, impose the same amount of tariffs. Until the evening, this caused significant unease in the markets, noticeable in share price declines and the weekly high in “safe haven” gold early in the afternoon.

Hope for negotiation followed by more threats

On Wednesday evening, following remarks by Donald Trump’s economic advisor and the US Treasury secretary, market participants predominantly opined that neither the US nor China would want to escalate the conflict and instead start negotiations. This temporary sense of harmony was shattered by Trump’s comments last night threatening an additional US$ 100 billion of tariffs. China again responded with its own set of threats. It is very difficult indeed to predict the outcome of these developments.   

As a result, the gold price performance was impacted by the news about the trade conflict in the past days. Last Thursday, gold traded at 1,326 US$/ounce – before advancing on Monday this week and reaching its weekly high at 1,348 US$/ounce on Wednesday. Yesterday afternoon, gold declined to 1,323 US$/ounce – just before Trump’s renewed threats towards China, which pushed the price of gold back up to 1,333 US$/ounce. At the moment, it is trading at 1,326 US$/ounce, the same level as last Thursday.

Xetra-Gold performance

As the euro declined during the week, gold denominated in the European single currency is trading slightly higher. From 34.60 €/gram last Thursday, Xetra-Gold rose to 35.30 €/gram on Wednesday afternoon. It has since fallen back to 34.70 €/gram and currently trades at around 34.85 €/gram.

Investors will probably turn their focus to US employment data this afternoon. However, the trade conflict is likely to continue to dominate market developments.  

I wish all my readers a sunny and relaxing weekend.

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