It is likely that the trade war and the increase in tensions between the US and China will be crucial for the financial markets again. Representatives of the Chinese authorities made it clear by the end of this week that they will not negotiate an agreement with the United States when they are still threatening to raise tariffs.
Chinese state media have signaled the lack of interest in resuming trade talks with the US under the current threat of tariff increases and without new measures that will show that the intentions of the United States to reach an agreement are sincere. The Chinese government announced the launch of further fiscal stimulus to strengthen the domestic economy. On the other hand, the topic of tariffs that the US may impose on Europe or Japan will disappear for a moment. President Donald Trump has announced that he is carrying out contract negotiations in order to solve the problem of national security threats with regard to imported cars and some car parts from the European Union, Japan and any other country that will be considered appropriate. Trump will ask you to update the progress of such negotiations within 180 days. This information had a positive impact on the euro's end-of-week performance.
Next week, a number of preliminary PMI indexes for May and the IFO index from Germany will be published. The recent escalation of the trade conflict may have a negative impact on this data, while the topic of customs for European cars appeared later and was probably not recognized in the survey. In addition to the publication in Europe, there will be a political topic, elections to the European Parliament, which will start this Wednesday. They can bring interesting results both on the European and national level.
Investors' attention in the next week may also be attracted by the British pound. The British currency is the biggest loser this week from the major world currencies. The GBP/USD fell this week by almost 2 percent. As a result, the pair set a new four-month low. It happened after a spokesperson for the UK government said that talks with the opposition Labor Party ended without an agreement on brexit. Therefore, in addition to continuing the political thread, it is also worth paying attention to inflation data. These may in the short term further increase the volatility on pairs with the British pound, if they will significantly deviate from the market expectations. In addition, the Bank of England's action on interest rates at the end of the year is still not excluded, if brexit will be postponed beyond October, and wage growth will continue.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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