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Markets Morning - Trump is winning, EU gives ground on tariffs, risk assets higher

Market Analysis /
Greg McKenna / 26 Jul 2018

Welcome to my daily Markets Musings.

You’ll see things are different from now on. That’s because the full note was approaching 2,000 words some days and I’m breaking it up into a number of reports on the Axi Blog each day now.

That way traders can subscribe to the Axi Blog easily and then cherry pick the yarns and markets of interest 

Feedback always welcome


Market Summary (Trump Wins – 7.37 am Thursday, July 26)

Love him or hate him, he’s effective.

That’s the takeaway from the news in the past hour that the EU is giving ground to President Trump on trade and has offered to increase imports of US natural gas, buy more soybeans, and work on lowering industrial tariffs.

As you’d expect stocks in the US are much higher after the news but what you mightn’t expect is that the US dollar is weaker. I say that because over the past few months trade battle news has been generally announcement negative for the USD. But this morning the announcement of some sort of deal has also been announcement negative for the US dollar.

Welcome to forex markets 2018 style.

Of course I get it, Ifo and PMI data has shown the impact of trade uncertainty in Europe and other jurisdictions of the trade battle. So a deal should lift some of that pallor, aiding growth, aiding the return of inflation, and aiding the ECB and other central banks plans to ease monetary accommodation.  

So Euro is higher this morning by 0.4% at 1.1729 and just below resistance. GBPUSD is up around the same amount at 1.3193 while USDJPY has now only fallen 0.2% as the risk rally mitigates news this morning of tweaks to BoJ policy toward ETF purchases – it's at 110.94.

The Aussie has shaken off the disappointing CPI news yesterday which suggests no discretionary pricing power and with it a weakness in aggregate demand. AUDUSD fell to 0.7393 yesterday but lifted as the Yuan recovered in afternoon trade and it’s now up at 0.7449 with a gain of 0.4% as well. The Kiwi at 0.6833 is just below its  Maginot line at 0.6850 while the CAD is the best performer and first clear break of trendline among the majors – USDCAD is at 1.3041, down 0.83%.

Back to stocks then and the S&P finished at 2,846, up 0.91%. Only two days in history have had higher closes, both in January this year. The Dow was up 0.68% to 25,414 and the Nasdaq 100 is up 1.38% at 7,508. 

That means Europe, whose bourses were all lower, will have some catch up to do when trade opens this afternoon – though futures are already higher than the close. And it means the Australian market might have a perkier day after yesterday’s mood soured with the miners the only big winners. SPI traders have added 10 points at the moment – questions of valuation will be top of mind again today though.

Commodity markets were better bid as well. Oil was higher after a big 6.1 million barrel draw in US crude inventories last week. So WTI is up 1.28% to $69.40 and Brent is up 0.94% to $74.13. Copper is also higher having leaped 1.55% to $2.8435 while the USD’s weakness has seen gold help itself to a 0.66% gain at $1232.  

If this is good news for stocks and risk assets then it should be bad news for bonds. Not yet though it seems with the 2 year Treasury at 2.68%, the 10 year at 2.97% and the curve at 29 points.

Elsewhere, Bitcoin ran into a very old but influential trendline yesterday and has backed off a little. It’s back at $8,130, down 1.1%.

On the day the ECB meeting and Mario Draghi’s press conference are the big events for forex traders and markets in general. No real change to the message that things are working back toward ECB targets and the taper is on track is expected. Also out are US goods trade balance, durable goods orders, Kansas City Fed index, jobless claims, and wholesale inventories.

NB: Facebook is down 20% after the bell as traders reflect their disappointment on earnings and outlook. This could impact, should impact, the overall market if it holds. Either way it will be interesting to see the impact on S&P futures today and then US trade tonight.

Have a great day

Macro Stuff that affects everyone and everything – either today or eventually


  • Jean-Claude Juncker said in his press conference with President Trump that he’d come to make a deal. And it seems that he has been true to his word with the two sides agreeing the Europeans will increase imports of US LNG and soybeans while also working together to lower industrial tariffs. The President said “we had a big day, very big” and noted that the EU and US had entered “a new phase” of trade relations. To that end the President announced there would be no car tariffs while negotiating, the steel and aluminium tariffs would be looked at, and the retaliatory tariffs would also be reconsidered.
  • It’s as much a deal to work together as anything concrete. But as we saw with German automakers and Chancellor Merkel a few weeks back EU business and political leaders did seem willing to concede to Trump’s plan for zero tariffs. So, I’d expect Juncker is just doing deals off the cuff – he has the backing of EU power brokers and business. That puts the focus squarely back on China now that there are renewed hopes for a NAFTA deal in the next few months as well.
  • The deal has come at a good time for Europe given the slippage we are seeing in economic indicators. They haven’t been weak per se, but as Holger Zschaepitz tweeted they were showing that “concerns linger for the future.
Source: Twitter Screenshot
Source: Twitter Screenshot
  • Equally though, another of Holger’s tweets showed why the ECB needs to get out of the way and let the economy function again. Bank lending and money supply growth are climbing faster than expected which suggests the underlying economy might actually be in decent shape.
Source: Twitter Screenshot
Source: Twitter Screenshot


Have a great day's trading.

Greg McKenna

Chief Market Strategist


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