Tuesday, October 19, 2021

Market Week Ahead: Strong start to end August

By Melissa Eddy

At the opening bell, Dow futures are up a slim 6 points as traders weigh rising trade tensions between the US and China.

Investors are still feeling on edge after Wednesday’s heated tariff battle that spilled into a second day. China moved early Thursday to raise tariffs on $16bn worth of US goods, including agricultural products and food imports from Boston and New York.

The Trump administration “can take on China – but one cannot challenge the hegemony of the US dollar,” Jim Teape, Head of FX, EMEA at Citigroup, said in a note on Thursday.

Trump has said that he will not hesitate to defend US trade interests, setting the stage for a trade war with the Chinese and retaliatory actions from other countries.

As Thursday begins, Eurodollar futures are lower while four-year-bond futures are up 3 points, 20Y futures are up 2.5 points and two-year are 3 points higher, which has some experts touting that this could spell good news for stocks in the coming months.

However, other analysts are concerned about financial stability on an aggressive trade war driven by rising interest rates.

One indication of this came on Wednesday when Barclays warned that the value of the US dollar could drop against key currencies.

Other analysts disagree with Barclays, pointing out that the Fed will be unwinding its balance sheet, and markets will react negatively.

Brexit impact

Brexit will also be on traders’ minds this week. On Tuesday, prime minister Theresa May will announce plans for a “Canada plus plus” trade deal.

Later this week, British voters will head to the polls to vote on whether to stay in the European Union or leave the bloc, a decision that is likely to cause jitters on the markets.

With this uncertainty hanging over the market, the US stock market would most likely suffer more than the international markets.

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