How Trump's Tariff Saga Shakes Up Markets

Donald Trump has been the US President for only three weeks but has managed to leave market participants juggling headlines around how tariffs impact equities, currencies, commodities, and stocks.

The Uncertainty Factor

Rather than specific tariffs, the uncertainty surrounding them appears to generate more market volatility. Goldman Sachs recently said that uncertainty could weigh on the stock market by around 3%. The USD/CAD pair exemplifies the rise in volatility. Traders initially expected Trump would not follow through on tariffs, leading to a spike higher before the planned imposition, only to reverse once a moratorium was agreed at the eleventh hour. This implies the Canadian dollar could weaken again if the next 30-day deadline passes without an agreement. Meanwhile, safe-haven demand has benefited gold, overshadowing expectations for higher interest rates to curb inflation. The lack of policy clarity combined with higher rates could challenge the tech-heavy Nasdaq, with its relatively high valuations.

The China Factor

The only threatened tariffs implemented so far have targeted China, which retaliated with its own tariffs. One of the casualties was Alibaba, which was hit by the elimination of the "de minimis" rule that allowed reduced inspection on shipments under $800. Budget retailers like Costco might have to raise prices to offset tariff costs that could impact their sales revenues. In the other direction, Elon Musk's close association with the Trump administration could hinder Tesla's access to its second-largest market, with China already targeting the company's Semi for retaliatory sanctions. Meanwhile, ASML has been shaken more by export restrictions on advanced chips rather than tariffs.

The European Front

Potential tariffs on European goods, which still remain un-tariffed, could affect ASML as US firms race to onshore advanced chip production. Trump demanded that the EU buy more oil and natural gas to reduce the trade deficit with the US, for which Trump has been threatening tariffs. This could offset lost Chinese demand due to retaliatory tariffs, but with Europe facing depleting storage, natural gas prices have not budged as the bloc buys up as much as possible. Analysts believe tariffs on Europe would target automakers, with budget brands like Volkswagen potentially more affected as the White House tries to push Americans towards domestic cars like those from General Motors. However, the UK might be an exception, with Trump avoiding mentioning tariffs on Britain, potentially benefiting firms like Croda.

Croda Forms Double Bottom

The speciality chemical company's stock has formed a double bottom pattern at 3080 GBX in the short term, supported by a larger pattern at 3000 GBX dating back to May 2016. Should the 3300 GBX support break, it could open its door to higher levels with a reversal potentially seeing prices rally towards the 3430 and 3540 GBX swings in the near term. However, if the stock loses support at the round level, traders might wait for a breakdown towards the 2745 GBX floor formed in March 2013 to determine the next move.

Source: SpreadEx / Croda International

Key Takeaways

While the uncertainty surrounding tariffs generates market volatility, the impact across assets and regions is significant. China has been the primary target of tariffs so far, though EU tariffs could potentially hit Europe's automakers while benefiting un-tariffed UK companies like Croda. With havens like gold benefiting from the uncertainty, will tech-heavy Nasdaq face more challenges ahead?