US proposes new tariffs on EU goods

Summary:

• The United States is considering imposing new levies on roughly $11 billion worth of EU goods
• Asian equities see mild gains, no moves of note in currencies
• UK Conservative and Labour parties are set to continue Brexit talks today

Trade war escalation

After months of a trade war the United States has initiated in order to trim trade imbalances with other countries, it looks like we are still a long way off to end this battle. On the one hand, Washington keeps negotiating with Beijing so as to hammer out a binding agreement to terminate the trade war between the world’s two largest economies. However, on the other hand the US is reportedly considering imposing higher tariffs on EU goods worth of $11 billion. This move is to be a response to subsidies supporting Airbus - the World Trade Organization (WTO) has found that these subsidies have a negative impact on the United States. Among products which could be embraced by new US tariffs one can find passenger helicopters, motorcycles, wines or cheeses. If the US actually proceeds to implement a set of new duties, it could further escalate trade tensions between Washington and Brussels. US Trade Representative Robert Lighthizer said that “This case has been in litigation for 14 years, and the time has come for action. The Administration is preparing to respond immediately when the WTO issues its finding on the value of US countermeasures.” Note that these findings are expected to be published in a few months. Let us recall that the trade battle between the US and the EU started last year when the former decided to charge levies on the imports of steel and aluminium from its key allies including the European Union. Then, in response to this step the EU imposed retaliatory duties on US goods worth roughly €2.8 billion.

Markets calm

So far markets have not reacted to these revelations and major Asian equity markets are trading prettly flat at this moment while the SP500 futures are pointing to a slightly positive opening. The same holds true when it comes to currencies (both G10 and EM) with the British pound rising 0.2% - the largest move. Looking at the broader market the Turkish lira is also gaining 0.2% trying to recoup its latest losses after Recep Erdogan challenged the latest local elections’ result.

The China’s Hang Seng (CHNComp) is trading slightly above the flat line this morning. Technically the index is trying to break above 11800 points, the important obstacle for bulls. Source: xStation5

In the other news:

• UK Conservative and Labour parties are set to resume Brexit talks today; on Monday evening the EU said that it was closer to a Brexit delay deal; the most likely scenario suggests that the offer to the UK on its Brexit delay will fall somewhere between June 30 2019 and April 1 2020

• Oil prices rose roughly 2% in New York on Monday, the move was propelled also by conflicts from Iran to Libya; on top of that the WTI’s front-month spread slipped into backwardation signalling tighter supplies