The Dow Jones index closed more than 400 points lower
The upcoming US consumer sentiment reading will be closely watched
Gold price bounded from its lows
Growing fears of oversupply are pushing the price of oil lower
Oops Trump did it again. The protectionism sound beat is highly un-liked by investors. They have shown their reaction and it is an ugly one. The Dow Jones index closed more than 400 points lower yesterday after rising more than 150 points earlier in the day.
The US futures are looking weak today as well. Yesterday, President Trump announced that the US will set tariffs of 25 percent for steel and 10 percent for aluminium, clearly putting America first and opened the door wide open for a trade war. Chinese officials are not going to remain reticent about this, we think there will be a reaction; a tit for tat and this is worrying the markets.
Forex
The dollar traders paid close attention to the testimony of the new Fed Chairman and his comments on the wage growth were the most intriguing one. The Fed chairman is know for his hawkish stance but he balanced the approach yesterday by mentioning that the wage growth still not at a point where he thinks it should be. This is influencing the dollar index today and after an initial upward move, traders have taken the profit off the table.
Having said this, it is a little too early to say what side the new chairman is going to choose but we do understand that he could influence other Committee members’ stance on the dollar by using his position.
The upcoming consumer sentiment reading will be closely watched and we are expecting a slightly soft reading. However, a number which is higher than 99.5 would send a strong signal to the dollar bulls that consumers are extra confident about the economy despite the Trump administrations’ protectionism stance.
Gold
Gold prices have rebound from their lows as the risk averse trade has finally kicked in. The protectionism stance by Donald Trump has encouraged traders to look at the risk at an asset which provides safety. Having said that, we do think that there may be some more rough days ahead this is due to the feeling that Fed may hike the interest rate more aggressively that initially anticipated. The New York Fed president, William Dudley’s comments are of particular interest as he thinks that four interest rate hike mean gradual tightening. Although, we are not sure if consumers are ready for that kind of tightening.
Oil
Growing fears of oversupply are pushing the price of oil lower. Oil is set to post first weekly loss since early February. Higher oil prices have brought more US shale oil production online and there is nothing the OPEC cartel can do about it. This continues to hunt traders and the positive momentum. Simply put, it is difficult to sell the idea how the US will curb its supply.
