Iran conflict latest: Trump pauses Iran energy plant strikes by 10 days
- Trump accuses China of violating deal
- Threatens to increase tariff on steel and aluminum
- Dollar slides, stock futures point to a lower Wall Street open
- Gold attracts safe-haven flows, oil gains on OPEC’s decision
Dollar slips as Trump hardens trade stance
The US dollar has been trading in a volatile manner for weeks now, mainly driven by US President Trump’s back-and-forth tariff-related rhetoric and actions. Last week, the greenback managed to gain some ground due to the resumption of negotiations with the EU and after headlines hit the wires that a trade court blocked several of Trump’s tariffs. Although the duties were reinstated by an appeals court, the news suggests that Trump’s power will be thoroughly checked.
Nonetheless, the US currency is starting this week on the back foot, after President Trump accused China of violating the trade deal signed in Geneva in mid-May, and threatened to double tariffs onsteel and aluminium to 50%, starting on Wednesday. China’s Commerce Ministry said today that the accusations were “groundless”, pledging to take all the necessary steps to safeguard its interests.
All this comes to confirm the view that the environment remained uncertain even after the world’s two largest economies temporarily found common ground a few weeks ago. After all, the accord was set to expire in 90 days if no permanent deal was reached, and Trump’s unpredictable character kept the chances of an earlier dispute very high.
Investors are still navigating uncharted waters, and the latest conflict, combined with Fed Governor Waller's comment that he still expects lower interest rates later this year, have prompted them to add to their rate cut bets. From around 50 basis points at the end of last week, they are now penciling in 55bps worth of reductions by the end of the year.
Wall Street set to open lower, data and Fed speakers awaited
Apart from the drop in the US dollar, Wall Street is expected to open lower today, as stock futures are already drifting south. The escalating tensions between the US and China may have revived concerns about tariff-related economic wounds, although the Atlanta Fed GDPNow model is pointing to a 3.8% annualized growth for Q2. This could be the result of front-loading during a period when most tariffs were suspended. Should the environment get more complicated, and more friction arise, a sharp slowdown may be on the cards for the second half of the year.
With all that in mind, today, the focus is likely to fall on the ISM manufacturing PMI for May. The non-manufacturing index is due to be released on Wednesday, while on Friday, the all-important jobs report will be released. With Fed officials expressing concerns about the upside risks to inflation, the prices charged subindices of the PMIs and wage growth may attract special attention this time.
Speaking of Fed officials, there are at least eleven speakers on this week’s agenda, including Fed Chair Jerome Powell later today.
Gold Rebounds, Oil Gains on OPEC’s Output Decision
Gold rebounded strongly amid the risk aversion, and it looks to be headed towards the high of May 23 at around $3,365. A break higher could pave the way for the peak of May 7 near $3,440.
Oil prices are also trading in the green today, despite the worsening trade relations between the world’s two largest economies. The buying of oil was the result of the decision of the OPEC+ group to increase production in July by the same amount as it did in each of the prior two months, confounding expectations of a bigger increase.
The reason why they are willing to pump more despite low prices may be to punish members like Iraq and Kazakhstan, who have persistently produced above their pledged quotas. With Kazakhstan already responding that it does not intend to reduce output, and with analysts saying that the group will implement another increase in August, the recovery in oil prices may remain limited and short-lived, especially if Sino-US trade tensions intensify.