MORNING OVERVIEW
Canada’s retaliatory tariffs on the US have gone into effect today, as the trade war saga continues between the US and one of its closest allies.
The objective: Key focus on the EUR as the bank’s interest rate decision approaches, whilst markets may also be looking at the CAD as the tariff situation continues to unfold.
MARKET SNAPSHOT
| MARKET | CURRENT | CHANGE | COMMENT |
| S&P 500 | 7698 | -0.26% | US CPI rates in focus |
| DXY | 98.897 | -0.28% | US CPI rates in focus |
| EUR/USD | 1.1617 | -0.05% | ECB decision on Thursday |
| USD/CAD | 1.3797 | -0.13% | Canada’s retaliatory tariffs |
| Gold | 4403 | -0.03% | Geopolitical tensions |
| Brent Crude | 98.626 | +1.75% | US-Iran tensions continue |
KEY MARKET THEMES
01 — Canada’s retaliatory tariffs are set to go into effect today
Canada imposed tariffs of 15% to 50% on hundreds of products from the US and trade tensions between the two nations continue to escalate. According to Bloomberg, the tariffs are set to hit US exporters who are located in Michigan and Ohio. The trade war between the US and Canada could possibly influence the CAD depending on how the trade war unfolds.
Market implication (CAD) : Neutral
02 — Saudi Arabia halts some energy operations
Saudi Aramco oil facilities were attacked on Monday. The attack appears to have originated from Yemen, with Iranian backed rebels having not claimed any new attack on Saudi Arabia. Nonetheless, the attack has resulted in the halting of some energy operations in the area which may further constraint the supply of oil into the global markets. Thus, the continued energy disruptions may have aided oil prices.
Market implication (OIL): Bullish
03 — China’s trade surplus widens
The Chinese trade data for the month of August was released during today’s Asian session. The data tended to showcase a widening of China’s trade surplus with the exports rate remaining steady at 25%, with their imports rate came in lower than expected at 28.2% versus 30.%. Lastly, their trade balance figure came in higher than expected at 809.30B versus 805B, which also tended to be higher than last month’s figure of 767.07B. In turn, the financial release may have aided the CNH.
Market implication (CNH) : Bullish
WHAT MATTERS TODAY
ECB Elderson Speaks
Time (GMT+2): 18:00
Potential market reaction:
Depending on the nature of the policymakers statements we may see some action in the EUR, as the bank’s interest rate decision is right around the corner. In particular, any hawkish comments could provide further support for the common currency, whereas a dovish sentiment could ease the market’s expectations of a hawkish ECB and may in turn weigh on the EUR.
WHAT MATTERS TOMORROW MORNING
China’s CPI rate for August
Time (GMT+2): 04:30
- Expected: N/A
- Previous: 0.5%
Showcases the inflation narrative in China
Potential market reaction:
Any rate higher than 0.5% could possibly provide support for the CNH as it would imply an acceleration of inflationary pressures in the Chinese economy. Whereas any rate lower than 0.5% could have the opposite effect.
ASSET FOCUS
[GOLD / COMMODITIES]
Gold appears to be moving in a sideways fashion for now after failing to clear our 4520 (R1) resistance line.
KEY LEVELS
- Resistance (R1): 4520
- Resistance (R2): 4695
- Support (S1): 4330
- Support (S2): 4180
Technical / Fundamental View: NEUTRAL
CROSS-ASSET VIEW
| ASSET CLASS | BIAS | KEY DRIVER |
| Equities | Neutral | Fed rate expectations |
| USD | Bearish | US CPI rates |
| Gold | Neutral | Geopolitical tensions |
| Oil | Bullish | Saudi energy facilities struck |
RISKS TO THE VIEW
The biggest risk to our views for today may be geopolitical developments once again
The US-Iran situation continues to be volatile and fast paced in terms of the developments. Moreover, should other countries be dragged into this, for example should it emerge that it was Iranian-backed rebels who struck Saudi energy facilities, we may see oil prices gaining support.
TRADING SPHERE VIEW
Bullish for oil prices
Our base case:
As tensions continue to escalate between the US and Iran, oil prices may continue to rise. We maintain our bullish view on oil as the situation in the Mid-East remains volatile
What would change our view:
A genuine attempt to de-escalate the situation
TODAY’S WATCHLIST
01 ECB Elderson Speech
