The trade war and U.S. politics that has emerged in recent months offer multiple trading opportunities, but there are 3 or 4 instruments that are highly relevant to traders. The most directly affected instrument is probably stocks, which tend to move down upon news that trade tariffs are to be introduced or that talks are not going well. Generally drive down demand because trade tariffs make goods more expensive to consumers .The stock prices of the companies producing those products will go down, if consumers buy fewer products.
Some stocks are more exposed than others. Who sell to China or Companies with extensive operations in the Chinese market are at a higher risk, since they will be targeted by Chinese tariffs. Industrial sectors and even tech sector stocks have already been impacted and may face further difficulties.
For example Apple makes around 15% of its sales in China. Demand for air travel continues to rise and the Boeing sells airplanes worth millions to china airlines. To buy from Boeing Rival Airbus instead, is another risk that china might instruct. Apple CEO Tim Cook has also directly blamed the trade war for poor iPhone sales in China. The Chinese economy has shown many signs of economic weakness and is drastically slowing from its impressive figures in previous years. Most analysts agree that China is already suffering the consequences of the trade war, but warn that the longer it continues, the greater the chances that the US and other economies will also slow down.
Commodities such as Crude and Gold Oil are also affected by the situation. When trade war tensions are high, and go down in value when investors are happy to take risks, The precious metal tends to increase in value in times of uncertainty. Crude oil has a more direct correlation with demand—if demand increases, prices follow, and vice versa. This means if economic growth is higher, Crude prices will grow, while in times of a downturn, Crude prices are more likely to fall.
For nearly two years the world’s two largest economies (the US and China) have been locked in an escalating trade battle. In 2017, the US launched an investigation into Chinese trade policies and has steadily imposed tariffs on Chinese products throughout 2018.The US has imposed three rounds of tariffs on Chinese goods, totaling more than $250 billion. US has launched the largest trade war in history and with its own tariffs worth $110 billion has said China.
The US and China are involved in senior-level negotiations. Before the March 1st deadline,both countries would like to reach a deal . On March 1st, the widespread tariffs of 10% on many goods will increase to 25%. Some reports suggest that no breakthrough is expected, but it is possible that the US will agree to extend the deadline a further 90 days if progress is made.
If this middle way is achieved—no immediate answer, but it may have a slightly positive upward pressure on stocks no new tariffs and a promise to continue talks. No significant impact on the dollar and slight downward pressure on Gold prices might also be in the cards.
Markets are expected to react negatively with stocks falling in the short to medium term,if talks end with no agreement and existing tariffs are extended on March 1st.The dollar would likely be boosted in value and Gold would probably rise as investors move away from riskier assets and invest in Gold instead. On the other hand, Crude prices may stagnate or drop back to their lowest levels so far this year.
The US and China sign a large ranging agreement to end the trade war and to cancel existing tariffs.This will be the best case or bull scenario for stocks is also the least likely. This would likely push stock prices sharply higher and market sentiment would improve greatly potentially leading to a far better result for stocks by the end of the year. This result would likely provide a welcome boost to oil prices too./investing.com