Tariffs Delay Enhances Risk-On Sentiment


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Major US stock-index futures bounced-off the lows cheering the Trump administration announcement of postponing the implementation of tariffs on Chinese products till December and both sides confirmed their plan for trade talks in September. Investors were seeing fleeing safety and jumping into riskier assets. The US 10-year yields rose to 1.718% after holding a one-week low of 1.616%. The Dow Jones Industrial Average futures rose to a one-week high of 26408, the S&P500 futures edged higher to 2935, and Nasdaq appreciated to 7789. Indices surrendered partial gains during the Asian session following soft Chinese economic data.


The dollar index which measures the greenback against a basket of major currencies edged higher to 97.85 on stronger inflation figures. The July core Consumer Price Index rose by 0.3% beating estimates of 0.2%, to signal a probable rebound in inflation, which could give the Federal Reserve more time to asses and act as appropriate. On the other hand, the dollar gained on the back of the dropping European currencies. The Euro tumbled following sluggish ZEW figures. The ZEW Economic Sentiment Index which gauges the six-month economic outlook dropped to -44.1 from -27.8, posting the lowest reading since 2011. Moreover, the British pound continued to weaken, weighed down by the rising Brexit uncertainty. The EURUSD declined to a low of $1.1164, and the GBPUSD drifted lower to $1.2043, and the USDJPY soared to a one-week high of 106.96 as investors were seen fleeing safe-haven assets as the Trump administration postponed tariffs on Chinese products to December.


Gold prices tumbled from a six-year high as yields recovered along with the dollar following the tariffs delay. The price of a gold ounce dropped from a high of $1535 to trade at a one-week low of $1480. Also, the price of a silver ounce fell from a nineteen-month high of $17.49 to $16.52, while palladium spiked to a two-week high of $1464.


Oil prices soared as investors' risk appetite improved, but gave up partial gains following softer Chinese data. The recently renewed trade clashes between China and the United States weighed on oil prices as it suggested a full-blown trade war between the world's largest economies which could deteriorate the global economic outlook and hurt oil demand. However, the investors felt some relief on Trump's administration step towards postponing tariffs on some products and sticking to trade talks in September. The West Texas Intermediate crude futures climbed to a two-week high of $57.43, and the Brent futures ascended to $61.48. However, prices erased partial gains as the Chinese Industrial production rose by only 4.8% in July, missing estimates of 6.0%. 

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