European stocks will be the losers of import tariffs

Stoxx600 and EUR USD



European stocks seem to face a double challenge once again, given Trump's intentions to introduce import tariffs for some European goods. The departure of Gary Cohn led to an initial downgrade of the USD as he was the last opponent of import tariffs, and today, following the decision of the ECB on the basic interest rate and Dovish, the sentiment amongst the members of the central bank EUR / USD was down.

In the last few days, everyone has been talking about a trade war, resigning in the Trump's office, and almost for a subsequent apocalypse. It turns out, however, that the introduction of import tariffs on industrial metals will not be the first in the history of modern capitalism. In the beginning of 2002, George W. Bush also took such action.

Here's what statistics about market movements say

When Bush imposed a 30% import tariff on steel, the dollar dropped significantly and the SP500 dropped by nearly 30 percent. What we should note, however, is the behavior of European stocks that literally collapses. The Stoxx 600 is down nearly 50%. The reason for this is the backward correlation between EUR and European stocks. Since the introduction of tariffs, the euro has grown strongly against the USD and other major currencies.

Can we expect such movements in the present?

We are unlikely to see such market crashes in the present as the world economy is now stronger than ever, and in the past, when Bush introduced import tariffs, the markets were still under the influence of the Dot-Com bubble. What we will certainly observe is increased volatility in both the stock and the FX market. With growing economic uncertainty, we can conclude that the rise in JPY and gold is the most likely scenario in the coming months. Regarding the indices, consolidation near the peaks is very likely.

Jr Trader Petar Milanov

 Varchev Traders

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