Money Flow & EU Premarket: Improved risk appetite in Premarket trading

Global capital markets are demonstrating relative resilience despite the escalation of the trade war between the two largest economies in the world. Investors are preparing for a volatile European session after the deadline for reaching a deal to prevent a 10% increase in tariffs on Chinese goods expired without a delay. Beijing responded almost immediately by announcing an investigation into Google and imposing new tariffs on a range of American products.

Despite the growing tension, Asian markets remain mostly in the green for the day, and futures on leading European and US indices have recovered their initial losses after a sharp decline. Government bond yields remain stable, and the Bloomberg Dollar Spot Index is moving without significant changes.

Expectations ahead of the European session point toward a more moderate risk sentiment, as no new official statements are expected from Washington for now. However, traders remain on alert for a potential compromise in the coming days, which could temporarily sustain risk appetite.

Capital Flows and Risk Sentiment

China’s decision to take retaliatory action and impose tariffs on American goods sends shockwaves through various asset classes. Oil is under pressure after the new Chinese tariffs, while cryptocurrencies – the new barometer for geopolitical uncertainty – are also in the red, with Ethereum among the leading losers.

Markets are experiencing a new wave of sell-offs, similar to Monday’s reaction after the initial tariff news, although this time the scale of declines is more moderate. The main question is whether the US will respond with more aggressive countermeasures, which could lead to more serious pressure on risk assets.

There is still some degree of optimism, as many investors expect a potential compromise between US President Joe Biden and Chinese leader Xi Jinping. Moreover, part of the market had already priced in the possibility of a prolonged trade confrontation, which explains why the sell-offs remain controlled for now.

While the focus is mainly on the tension between Washington and Beijing, European investors will also be watching for potential new guidance from the European Central Bank on monetary policy. Should the US extend its trade pressure to Europe, we may see a broader spread of negative risk sentiment, which would put additional pressure on capital markets.

What to Expect in the European Session?

🔹 Indices: A slightly lower opening is expected, but the risk sentiment remains mixed.
🔹 Currency Markets: The dollar is stable, but flows into safe assets could increase pressure on the euro and pound.
🔹 Commodities: Oil is under pressure, and gold may attract capital if tensions escalate.

Today, the European session will be critical in determining the medium-term sentiment, with traders carefully watching for any new statements from Washington and Beijing.”