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From the Floor: Markets swing to the tune of tariffs – #SaxoStrats

  • Markets swung higher on news of Republican push against tariffs
  • If Trump isn't persuaded, markets will quickly sour again
  • Trade war is the major theme, causing markets to swing
  • The consensus view is that this will be just a minor thing
  • Remaining underweight on Italy is best in view of political uncertainty
  • Oil jumps with stocks as Ryan and Cohn try to halt tariffs
  • Yesterday's oil news was mostly negative; Libya stoppage only brief
  • Nevertheless, oil price did rally strongly yesterday
  • Gold is drifting lower but holding onto most of last week's gains
By Clare MacCarthy

Markets remain under the spell of President Trump's tariffs this morning after it emerged yesterday that leading Republicans are trying to get him to soften his drastic plans. US stocks rallied strongly on this development, Asian equities followed suit and European markets are also opening stronger.

But hopes that House Speaker Paul Ryan and Gary Cohn, head of the National Economic Council, that they can effect a significant climbdown, remain just that  – hopes. "If Trump isn't persuaded then markets could sour quickly again," cautions John Hardy, Saxo's head of FX strategy.

The Canadian dollar, or course, remains arguably the most exposed currency to the tariffs, given the large scale of its metals exports south of the border, and this explains its weakening against the dollar which now has USDCAD pushing against resistance at 1.3000.

Source: Saxo Bank 

Peter Garnry, Saxo's head of equity strategy, adds that while the consensus view has swung to thinking that the tariff commotion will only prove temporary and minor that "our view is to stay defensive on your portfolios". This advice pertains especially to Italian assets because of the political deadlock that resulted from last weekend's election.

Finally today, oil too jumped on news of the Republican anti-tariff efforts despite several pieces of negative news, including the return on-stream of a Libyan pipeline that had been halted by severe weather. And with risk aversion melting away, gold has given up some of last week's risk-off gains and is drifting lower as the market awaits news on the US tariffs and the subsequent reaction from bonds and the dollar, says Ole Hansen, Saxo's head of commodity strategy..
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