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Stocks fall as Trade Tensions Escalate, Dollar Recovers

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Equities

US stocks dropped yesterday as trade tensions between the US and its top allies escalated. Wilbur Ross, US commerce secretary, stated that tariffs on steel and aluminum from Canada, Mexico, and the European Union will take effect Thursday midnight. Mexico responded to this action by imposing tariffs on Food imports which added pressure on the US food companies. President Trump said that either we reach a fair NAFTA deal or there will be no deal at all, knowing that the Canadian Prime Minister, Justin Trudeau, announced that they were close to a final deal mid-May. Trump ended his day with a tweet "Fair Trade!" which could indicate that trade war tensions are here to stay for a while.

USD

The dollar index ended May with the biggest monthly gain since November 2016. The dollar was supported lately by the divergence of the Economic outlook between the United States and its rivals. In terms of data, the monthly US job report is due today. Analysts expect that the US economy added more than 180 thousand jobs in May and the unemployment rate is stable at 3.9% the lowest level since January 2001.

EUR

The Euro ended higher on Thursday against the United States dollar as the Italian political conflict is set to cool down. The drawback in the Italian bond yields reduced investor's fears. Moreover, the preliminary release of the Eurozone Consumer Price Index for May showed a better-than-expected reading which signals that the inflation numbers might pick up again.

CAD

The Canadian dollar fell against the US dollar after a soft GDP reading. The first quarter, annualized GDP came out at 1.3% versus an expectation of 1.8%. The Loonie gained more than one percent post the bank of Canada meeting statement. However, most of these gains faded on the weak economic report and the rise in trade tensions between Canada and the United States. 

Gold

Gold prices remain steady in a range of $15 ahead of the US jobs report. Gold found heavy resistance near the 200-day simple moving average at $1307. However, gold prices could find support from a weaker jobs report and the escalation of the trade war fears.

Oil

Oil prices tumbled despite the drop in US crude oil inventories. West Texas Intermediate WTI ended the day almost two percent down while Brent erased its earlier gains to end the day near the opening price. The Energy Information Administration reported that the crude oil inventories dropped by 3.620 million barrels last week. The spread between Brent and WTI is approaching again $11 which is the highest since March 2015.

Major Economic Events

GMT Country Event Expectation Previous
7:55 EU German Manufacturing PMI (May) 56.8 56.8
8:30 UK Manufacturing PMI (May) 53.5 53.9
12:30 US Nonfarm Payrolls (May) 189 164
12:30 US Unemployment Rate (May) 3.9% 3.9%
12:30 US Average Hourly Earnings (YoY) (May) 2.7% 2.6%
14:00 US ISM Manufacturing PMI (May) 58.2 57.3
17:00 US U.S. Baker Hughes Oil Rig Count   859


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