Daily Market Update

Trade Wars Sink Stocks, Benefits Dollar

July 02, 2018

The greenback gained most of last week, touching an 11-month high, before selling-off on Friday to close the month.


The U.S. dollar is recovering much of its Friday’s losses in early trading today as stocks around the globe are a sea of red.

This week will be key for global trade and is already driving stocks lower. President Trump is set to impose $34 billion in tariffs on Chinese imports on Friday. China is set to respond with $34 billion of its own tariffs, and much of the heat will be taken by U.S. auto manufacturers. Traders seem to expect that neither side will back down and the tariffs will be implemented, further escalating global trade tensions. Making matters worse, Canada announced on Sunday that they will be implementing 12.6 billion in tariffs in retaliation to the steel tariffs from the U.S. In addition, Europe has threatened the U.S. with new retaliatory tariffs worth up to 300 billion.

The Mexican peso reversed its gains from Friday’s session and is a full percent lower this morning following the election of leftist, populist Andres Manuel Lopez Obrador.

ISM manufacturing and manufacturing PMI will be released later this morning. Factory orders highlight tomorrow’s docket. All U.S. markets will be closed on Wednesday in celebration of Independence Day. Non-farm payrolls will be released on Friday and is always a market-mover.



EUR/USD continues to see wild swings but remains in a relative tight 1.5% range. After rallying nearly a percent on Friday, the Euro is under pressure again this morning, giving up most of its recent gains. Today’s drop can be blamed on the potential escalation of a political crisis in Germany. The Euro found some relief last week after German Chancellor Angela Merkel appeared to have made a deal over the migration crisis with other European leaders. However Horst Seehofer, who is the leader of the Bavarian CSU party and a key member of Merkel’s fragile coalition, has threatened to resign over what he sees as a weak deal. The collapse of the coalition government would put significant downward pressure on the common currency.

Fundamental data has failed to help the currency. Euro-are manufacturing growth slowed more than initially estimated last month, expanding at the weakest pace since the end of 2016.

EUR/USD is within 1% of the 11-month low touched last week



The British pound is once again under pressure this morning. The sterling had finally shown some signs of life on Friday following solid GDP data. However, the sterling is again lower as political uncertainty continues to dog the currency. Embattled Prime Minister Theresa May will gather her cabinet this week to decide on tis Brexit negotiating position.

U.K. manufacturing held steady in June but the print was unable to save the GBP/USD from a minor sell-off.


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