Market Commentary by Tim Waterer, Chief Market Analyst at KCM Trade & Advisory Board Member, Forbes Advisor Australia:
Financial markets are becoming increasingly conditioned to Trump’s tariff policies, showing less alarm at his latest tariff tirades than before. This could be interpreted as a win for Trump, as it may be a sign of acceptance that higher tariffs from the US side are now part of the norm. This week, Trump announced 30% tariffs on Mexico and the EU (European Union), and again markets shrugged off the news, whereas a similar announcement made earlier in the year would probably have sent markets into a spin.
Why the relatively muted market reaction? Delayed tariff deadlines have kept investors hopeful that lower tariff levels may still arrive. And China’s quite solid trade balance and GDP data this week have shown that countries are weathering tariff uncertainty better than feared. So long as US-China trade negotiations remain on track, investors may continue to absorb other tariff announcements with limited fuss. In other words, the prospect of a broader US-China trade deal is holding risk appetite together. But any signs that US-China trade talks could get derailed could see widespread risk aversion return with a vengeance.
The latest US CPI data showed that headline and core inflation have indeed taken a step higher, which will likely dissuade the Fed from tinkering with interest rates at least for the next few months. And maybe more, depending upon which way CPI trends in coming releases. Year over year, CPI rose from 2.4% to 2.7% in June, while month-over-month core CPI inched higher from 0.1% to 0.2% (albeit below the consensus estimate of a 0.3% rise).
While US inflation isn’t exactly ‘off to the races’ in response to US tariff policy (at least not yet), with CPI edging higher, the Fed will be more prone to sit on their hands regarding rates, which sent treasury yields higher with the USD following suit. The 10-year treasury yield has made a move back towards 4.5%, while the Dollar has continued its recovery effort from its early-July lows. Having slipped below 96.50 at the start of the month, the Dollar Index (DXY) has climbed to 98.50, with the CPI data helping to preserve the yield advantage of the greenback.
Despite tariff tensions ratcheting up again this week, the move higher by the USD and bond yields in response to the CPI data took the wind out of the sails of the gold price. President Trump’s announcements this week that Mexico and the EU would be facing 30% tariffs come August 1st initially helped gold to hit $3372 earlier this week, before gold slipped to now be trading at around the $3330 level following the US CPI data. Support awaits at $3312 and $3294, ahead of key support at $3250 which needs to hold to protect a larger downside move. Resistance is at $3358 and $3386. The precious metal may need a softening of the USD, renewed geopolitical tensions or further tariff escalations to resume its attempt at reclaiming the $3400 level.
Oil prices remain subdued with risk-premium still largely absent from the price. Trump has threatened stiff sanctions on countries who buy Russian exports (such as oil), but with a 50-day deadline announced, there is no urgency for the oil market to react yet to any possible supply side constraints that may emerge should the sanctions come into effect. For US crude, support sits at $65.30 and $64.90, while resistance at $68.30 would need to be overcome for any potential run back to $70.
More information: KCM Trade - Market News