Daily Market Color August 8, 2018Another Day, Another Tariff Tiff US vs. China Tariff Battle: Round Two Yesterday evening the US announced its intention to levy the second round of tariffs on Chinese imports come August 23rd. The 25% duty will target roughly $16 billion worth of Chinese goods, including electronics, motorcycles, and semiconductors. This morning the Chinese commerce ministry acknowledged the move by the US, labeling it “very unreasonable”, and stated its plan to retaliate with equal tariffs on US imports on the very same day. What’s Next: The Trump administration has vowed to levy tariffs on an additional $250 billion worth of Chinese imports by the end of this year, which China has already warned will be met with retaliatory tariffs of equal value. However, US exports to China only total $130 billion, suggesting that the difference may be made up through the penalization of American companies doing business in China. Trade Fears Impact Financial Markets The escalation in trade war between the world’s two largest economies weighed on risk assets during today’s trading session. Crude oil futures plummeted, with a barrel of WTI falling 3.2% and breaking through a key resistance level of $67. Helping to play a part in the decline was a smaller than expected reduction in US crude inventories last week, as stockpiles fell by 1.4 million barrels vs. the 3.3 million forecasted. In bond markets, US Treasurys saw a modest flight to safety with yields/swap rates falling 1-2bps across the curve, and the 10-year note yield closing near 2.96%. Major stock indices finished near unchanged on the day, as equity investors took a breather from the corporate earnings driven rally in the first two sessions of the week. In the crypto market, Bitcoin continued its decline, falling more than 6% to $6,300 per coin. Ruble Sinks on US Sanctions It was reported today that the United States will impose fresh sanctions on Russia in response to the poisoning and attempted assassination of Sergei Skirpal, a former Russian spy who became a British double agent, and his daughter earlier this year in the UK. The sanction determination was auto triggered due to the US recognizing the use of chemical weapons in the attack — a violation of the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991. The sanctions highlight two key areas: The banning of any export of goods to Russia that is sensitive to national security. Requirement that Russia be able to provide “reliable assurances” that they will not use chemical weapons again and agree to “on-site inspections” by the UN. Any failure to observe the sanctions could result in a downgrade to diplomatic relations, alongside a severe limitation of future trade between the nations. The Russian ruble (RUB) tumbled to its lowest level in the past two years following the news, down more than 3% on the day.
