Daily reviews


Trump’s aggressive trade policy hits riskier assets, oil at February lows


Regional stocks edged down further on Friday as Trump's sudden announcement of tariffs on all Mexican imports rattled investors even more. The US President wrote in the Twitter about imposing 5% tariffs on all goods from Mexico starting June 10.

  • US-China trade tensions continue to escalate
  • Risk-off sentiment prevails in the stock markets
  • China threatens rare earth exports restrictions
  • Trump will hit Mexico with 5% tariffs on all goods
  • EURUSD loses ground amid risk aversion
  • Oil prices fall dramatically amid the trade wars

Asian equities

Asian markets were mostly on the defensive last week as trade wars continued to escalate. Regional stocks edged down further on Friday as Trump's sudden announcement of tariffs on all Mexican imports rattled investors even more. The US President wrote in the Twitter about imposing 5% tariffs on all goods from Mexico starting June 10. Trump also added that the duties would gradually increase until "illegal migrants" stop coming into the United States through Mexico.

The sudden decision sent shares in automakers with plants in the North American country falling sharply. In particular, Honda dropped 4.26 per cent, Mazda plummeted 7.13 per cent, Nissan was down 5.31 per cent, while Toyota shares slipped 2.84 per cent. Japan’s Nikkei 225 fell 1.6 per cent, Hong Kong shed 0.8 percent, while Shanghai edged down 0.2 per cent and Singapore lost 0.8 per cent.

US equities

S&P 500 dropped 2.6%, extending losing streak to four weeks and lost 6.6% in May. The trade rhetoric between the US and China continued to escalate. As such, the Donald Trump administration raised tariffs on Chinese goods from 10 percent to 25 percent. China responded with a threat to retaliate by raising tariffs or imposing restrictions on rare earths, minerals that U.S. companies need to build electronic devices, refine oil into gasoline and many other things. Over the weekend, China issued a report blaming the United States for the countries’ trade dispute and said it won’t back down on “major issues of principle,” but offered no clarification about what additional steps it might take to up the ante. China does not want a trade war with the U.S, but it’s not afraid of one and will fight one if necessary, said the white paper. The document also showed that U.S. allegations of China over IP theft are “an unfounded fabrication”, adding that China has made great efforts in recent years to protect and enforce IP rights.

After a nervous week, stocks extended declines on Friday as investors feared President Donald Trump’s surprise threat of tariffs on all Mexico imports. The Dow Jones Industrial Average closed 354.84 points lower at 24,815.04, while the S&P 500 slid 1.3% to 2,752.06. The Nasdaq Composite dropped 1.5% 7,453.15. The Dow dropped 3% for the week, which was the sixth straight weekly loss and the longest weekly losing streak for the index since 2011. The S&P 500 and Nasdaq posted their fourth straight weekly loss. The major indexes also snapped a four-month winning streak.


EURUSD was higher on Friday but closed in the negative territory in the weekly charts, with the prices registered a low marginally above the 1.11 figure. The common currency was mainly under pressure during the week amid the prevailing risk aversion on rising US-China trade tensions. As for the data, GfK consumer climate was slightly lower at 10.1 compared to the previous reading of 10.2. German retail sales declined unexpectedly by 2.0% month-over-month in April, missing market expectations of a 0.1% rise and after a revised of flat reading in the previous month. Consumer price index in Germany increased to 105.40 index points in May from 105.20 index points in April. Meanwhile, investors dumped Italian government bonds, lifting their yields, in favor of safer assets on the growing danger of a clash over the Italian government’s spending plans. The European Commission said it may impose a $4 billion fine on Rome for failing to rein in its public borrowing. This was another catalyst for broad risk aversion on top of the negative US-China trade developments. Besides, the ECB expressed concerns over high debt, weak banks and a property bubble, which added to the negative sentiment around the euro.

USDJPY fell dramatically last week, down to mid-January lows around 108.27. The pair failed to climb back above the 110.00 figure earlier and turned sharply lower on Friday as the dollar was under a severe selling pressure on the last trading day of the week after Trump threatened to impose tariffs on all exports from Mexico. The yen saw stronger gains versus other major currencies as one of the most important safe havens, with no any signs of a near end to the US-China trade dispute that threatens the future of the global economy. By the way, China’s manufacturing PMI fell to 49.4 in May, the lowest reading since February and below estimates of 49.9. This was the fourth month in six that the reading has been below the 50 contraction/expansion threshold. The new orders sub-index fell deeper into contraction territory while the new exports component slumped dramatically from 51.4 in April to 49.8. The dismal data from the worlds’ second-largest economy fueled investor concerns over the outlook for the global economy amid the ongoing trade tensions between the US and its trading partners.


Trump’s aggressive trade policy coupled with the slowdown in the Chinese economy cast doubt on the outlook for global demand, which sent oil prices to more than three-month lows last week. On Friday, Brent lost over 5%, down to $61,38 from weekly highs above $69. The barrel declined by more than 11% in May, which is its worst single month since November. The steep declines came amid a broad retreat in riskier assets after Trump announced a plan to impose tariffs on Mexican imports starting June 10. As a reminder, the US is a major importer of Mexican crude, and refineries relying on the supply could face difficulties replacing it when tariffs come into force. Meanwhile, the dismal Chinese manufacturing data raised concerns that the government efforts to support growth are faltering amid the ongoing and escalating trade tensions with the Washington.

Bearish EIA data added to the selling pressure in the market. The Energy Information Administration on Thursday reported that US crude supplies edged lower by 300,000 barrels for the week ended May 24 while analysts expected a fall of 1.4 million barrels. The report also revealed that gasoline inventories climbed by 2.2 million barrels, while distillate stockpiles fell by 1.6 million barrels. Moreover, crude oil production returned to a record 12.3 million barrels per day, which was another bearish factor for Brent. Despite the oversold signals in the market, prices could extend the decline in the short term and challenge the $60 psychological level should the trade tensions continue to rise.