General, Indices

Technical Analysis: US appear coordinated and firm on tariff hike

Michael Baker, Wednesday, 8 May 2019

Trade talks hit the headlines again this week as a tweet over the weekend suggested that the feared hike in tariffs on US imports from China is likely to increase to 25%. Although threats to hike the tariff have not materialised over the past few months, the rhetoric has gathered pace recently.

The Wall Street journal on Monday reported that China were “reneging” on its promises, with US Trade Representative Robert Lighthizer stating that the US has seen an “erosion in commitments by China” over the past week.

Tariffs on $200 billion in Chinese imports now appear likely to rise to 25% on Friday. High level talks with Chinese negotiators are expected to continue this week in Washington to avert tariff hikes.

Tariffs on the second largest economy’s exports to the US are likely to affect China's growth as well as global growth. Earnings will subside which in turn will also have an effect on US growth. Reasons on why China are thought to have backtracked over previously agreed measures are unclear but the more coordinated threat from the US could possibly be a negotiation tactic.

Markets have previously been led to believe that talks between the two largest economies had been constructive but the sudden news to the contrary has rattled global indices. Wall street is currently showing losses of 2.4% since Friday's close with the Germany 30 down over 3%. Key Fibonacci retracement levels now come into focus, and Wall Street tested the lower end of a daily trend channel in yesterday’s low.

Markets are expected to remain under pressure if no updates on progress reach the wires by Friday. Previous market activity generated by tariff hike talk have seen markets pullback from extreme selloffs, have we been presented with another opportunity?

Wall Street daily chart showing sell off to lower trend line.

08.05 blog

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