Morning note - risk aversion

With inflation coming out in line with expectations, the equity markets held up until Trump made his announcement.

Morning note - risk aversion

With inflation coming out in line with expectations, the equity markets held up until Trump made his announcement. Trump and his administration want to impose tariffs of 25% and 10% on all imports of steel and aluminum. This generated strong reactions around the world, particularly in Europe and Canada. It is not yet clear which countries, if any, will be exempted from the proposed rules.

The uncertainty of a potential trade war is adding to the ‘unknown’ this weekend, with the polls in Italy and Germany already a factor. Risk aversion could therefore extend at least until next week.

Technically the SP500 has dropped below 2700 and may extend its decline to 2600.

Resistance: 2700, 2740, 2800

Support: 2620, 2612, 2590

Morning note - risk aversion

The DAX will remain volatile ahead of the SPD’s postal ballot result this weekend, with the risk of a gap up or down possible at the opening on Monday. A recent poll indicated that 56% of SPD members would vote in favor of a coalition. Intraday, the level of 12000 must hold, otherwise we could see the bottom of August 2017 at 11867.

 

EUR/USD - according to a Morgan Stanley note, a vote in favor of a CDU/SPD coalition would lead to fiscal expansion in Germany and accelerate European integration. This is the base case scenario, and would be positive for the euro. On the other hand, if the SPD rejects the coalition, EUR/USD could fall to 1.16/1.17.

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