The coming hours will be absolutely crucial for markets. The paramount question of the day is whether the US and China can strike a trade deal by midnight Friday in Washington, or will heightened tariffs kick in by 12:01AM?
Given the looming deadline, hope for a trade resolution appears to be waning. Asian currencies are falling against the US Dollar while the Japanese Yen is gaining 0.1 percent at the time of writing. Risk-off mood is clearly taking a hold on equity markets across the region, as they are all trading in negative territory on Thursday morning except for Australian and Thai stocks.
Over the course of Thursday, markets will be ultra-sensitive to any development pertaining to US-China trade negotiations. In the lead up to Chinese Vice Premier Liu He heading stateside for these crucial talks, US President Donald Trump claimed that Chinese officials “broke the deal”.
Should the high-stakes negotiations produce a market-positive outcome, averting increased tariffs which threaten to further drag down global growth, this may allow global markets to breathe a huge sigh of relief and allow riskier assets to pare losses. However, should the existing 10 percent tariffs on $200 billion worth of Chinese goods indeed be raised to 25 percent, prompting “necessary countermeasures” from China, that will be a major hit to risk appetite and force investors to reallocate global portfolios, placing an immediate emphasis on safe-haven assets.
Gold to find support at $1,280 floor
Amid such fraught sentiment, Gold traders may be able to rely on the $1,280 level for support over the near-term, until there is further clarity on US-China trade ties. Having already breached the $1,290 level this week before moderating, Bullion may surge past that level once again, in the event that negotiations in Washington break down and the higher US tariffs kick in.
Markets will also be mindful of potentially more tariffs being imposed “shortly” on a separate $325 billion worth of Chinese goods, as mentioned in President Donald Trump’s tweets. If that too comes to pass it might pull the handbrakes on the world’s economic expansion, and give Gold prices another huge leg up.
Brent futures to test $69/bbl support line
Brent futures have declined by about seven percent since its year-to-date high of $74.75/bbl on April 25 and have already tested the $69/bbl support level at the start of the week, as traders appear primarily driven by concerns surrounding US-China trade ties.
Should trade negotiations between the world’s two largest economies crumble, dampening hopes of a global economic rebound, demand side uncertainties may then come to the fore and upend OPEC+ producers’ attempts to rebalance the Oil markets. Even though sanctions on Iran and the respective crises in Venezuela and Libya already threaten to further tighten global supply, higher tariffs that curtail economic and trade activity could translate into faltering demand for Oil, which in turn may give OPEC+ the green light to extend production cuts into the second half of 2019.