US Dollar, S&P 500 Spike Lower As China Announces Tariff Retaliation

Trade War Analysis and Talking Points:

  • China to Raise Tariffs on June 1st
  • Tariffs to be Raised to 25% on $60bln of US goods

See our quarterly FX forecast to learn what will drive prices throughout Q2!

China have announced that they will raise raises to 25% on $60bln worth of US goods from June 1st in retaliation to the United States decision to raise tariffs to 25% on $200bln worth of Chinese goods. In regard to the details, the Chief Editor of Global Times noted that China may stop purchasing US agricultural products and energy, while also reducing US service trade with China.

In reaction to the announcement by China, US equity futures tumbled with the S&P 500 down 1.8%, while the US Dollar also dropped. As Chinese press noted that scholars are reportedly discussing the possibility of dumping US treasuries, which in turn, took the USD and US yields lower. Consequently, as the tensions between the US and China continue to escalate, money markets have raised their expectations of a Fed rate cut with 35bps worth of easing priced in by January 2020.

At the same, the US 3-month/10yr yield spread has once again inverted with the New York Fed indicator highlighting that there is a 27% likelihood of a US recession with the next 12-months.

US Dollar, S&P 500 Spike Lower As China Announces Tariff Retaliation

Source: New York Fed

S&P 500 Price Chart: 1-Minue Timeframe (Intra-day)

US Dollar, S&P 500 Spike Lower As China Announces Tariff Retaliation

US Dollar Price Chart: 1-Minute Time Frame (Intra-day)

US Dollar, S&P 500 Spike Lower As China Announces Tariff Retaliation

TRADING RESOURCES:

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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