FX168 Financial Newspaper (Hong Kong) News Global Trade Wars Resurgent: Thursday (May 31st) As expected, US President Trump announced that it will impose tariffs on the European Union and Mexico, and investors are worried that this will trigger a retaliation from the EU. The US trade protection policy has added new anxiety. Affected by this, gold once surged to 1306 on the previous day, then fell sharply and closed late at the 1300 mark. The most important data “bomb” of this week will be ushered in this week’s market – the US non-agricultural employment report. At the same time, there are two major issues that cannot be ignored – Spain’s no-confidence motion on Rajoy and the DPRK leadership. High-level talks.
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The gold trend in the previous day was quite volatile. Affected by the trade tension, the European market was once soared to 1306 level in early trading, trying to probe the 200-day moving average resistance. However, the political tension in Italy was eased, and the gold's safe-haven buying and demand weakened. The sharp fall dropped instead, hitting a low of 1279.50, and closed within days near the low, closing out a "shooting star" pattern.
This week, the market was turbulent. After the political crisis broke out in Italy and the trade friction between China and the United States escalated, US President Donald Trump ignited everywhere. On Thursday, he announced that he would levy tariffs on steel, aluminum, and steel in Canada, Mexico, and the European Union. This move caused a resurgence of global trade wars and triggered market riots.
In this regard, the European Commission Chairman Juncker said the same day, the EU will retaliate against this decision of the United States.
German Chancellor Angela Merkel criticized the U.S. steel and aluminum tariffs as "unilateral" and "illegal," warning that this will lead to "retaliation and escalation," and "to the final injury to all."
German Foreign Minister Mas responded on the same day that the U.S. unilateral tariff on steel and aluminum was “illegal” and that he did not recognize the decision of the Trump administration. German Finance Minister Schultz said that the EU's response to tariffs must be "clear, firm and sensible."
According to Agence France-Presse, French President Mark Long told US President Trump that the U.S. tariff is illegal and the EU will fight back.
When trade frictions between China and the United States escalated again this week, Trump waved the trade protection banner to other countries. This move undoubtedly increased the risk of a global trade war.
The IMF warned that the wave of trade protectionism is the biggest risk facing the global economic outlook. Roberto Azevedo, director-general of the World Trade Organization, also warned member states not to go to a trade war, and the trade war will be out of control.
"Overall, adjusted trade measures are generally unfavorable to the dollar because they are considered to be based on continued currency bias," said Daniel Katzive, head of North American foreign exchange strategy at BNP Paribas.
Analysts pointed out that once Trump makes a final decision, the imposition of steel and aluminum tariffs on the EU, Canada, and Mexico will inevitably intensify global trade tensions, which in turn will put USD/JPY under pressure.
The news pointed out that the two major anti-establishment parties tried again to form a coalition government instead of forcing Italy to hold a second general election within this year, which allowed the market to recover to a certain extent.
Italy’s interim prime minister, Kotareal, said on Wednesday that the possibility of “the birth of a new government composed of politicians” means that Italy will be able to get out of the deadlock under the guidance of politicians rather than technocrats. This eased the doubts about Italy’s possible election.
Non-agricultural hits tonight to alert the two major risk events bombing!
Even though Gold was unwilling to return to the bottom of 1300, it was only for the non-agricultural drama tonight!
At 20:30 p.m. Beijing time on Friday, the United States will announce the non-agricultural report in May. This is the most noteworthy event of the week, especially when the June rate hike meeting is approaching. As usual, the market remains concerned about the three major aspects of this report, namely, the number of new jobs, unemployment, and salary data.
The current market forecast for the non-agricultural sector in May increased by 188,000, with the previous increase of 16.4 million; the unemployment rate in May is expected to be 3.9%. Monthly average monthly rates and annual rates for May are expected to be 0.2% and 2.7%, respectively, both of which have risen compared to the previous value. The ADP data released on Wednesday was to add 178,000 jobs.
The increase in the number of non-agricultural employment last month was lower than expected, and the unemployment rate has been at a low level since 2000, indicating that the employment market is close to full employment. This has led the market to shift its focus more towards salary data.
Neil Melor, a foreign exchange strategist at the Bank of New York Mellon, pointed out that this week's employment data, especially salary data, will be crucial to future gold. He said if inflation does not increase strongly in May, inflation expectations will remain moderate.
David Madden, market analyst at CMC Markets, pointed out that he is also concerned about rising wages because it will not only affect inflation but also show whether the US economy will continue to grow.
Although this week's employment data will not affect the rate hike in June, Madden said that the disappointing salary data will affect the expectations for September and December.
According to the CME "Fed Observations" tool, the probability of the Federal Reserve raising interest rates by 25 basis points in June this year to the 1.75%-2% range is 85%, and the probability from September to this interval is 37.3%.
Unless there is a big agricultural show, there are two major events today: Spain’s no-confidence motion on Rajoy and high-level talks between the DPRK and South Korean leaders.
At the moment, investors in the financial markets are highly vigilant against the political situation in Spain. The opposition party is trying to achieve the goal of expelling Prime Minister Rajohi, and this may have an impact on the market.
According to Bloomberg reported on Friday, the Spanish Prime Minister Rajoy may be forced to step down on Friday, and financial markets may be affected.
The Spanish Workers’ Socialist Party received enough support on Thursday to win a vote of no confidence, and Rajoy’s party leader insisted that the prime minister would not resign. This means that Rajoy’s term will end in Friday’s parliamentary vote.
Rajoy may be the first Prime Minister to be impeached to step down in the history of Spanish democracy.
The Spanish National Television (TVE) reported on Thursday that the Basque Nationalist Party will vote against Rajoy and Lahoy faces a downfall. After the PDeCAT party in Catalonia, Spain, the consensus is that Rajoy must step down.
Soros, the financial tycoon, said on Tuesday that the surge in the dollar, coupled with the escape of emerging market capital, would trigger a "major" financial crisis. He also warned that the EU is facing imminent threat of survival.
Soros said in a speech in Paris on Tuesday that the "termination" of Iran's nuclear agreement and the "disintegration" of the transatlantic alliance between Europe and the United States will surely adversely affect the European economy and lead to other misplacements, including the devaluation of emerging market currencies. He warned: "We may be moving toward another major financial crisis."
Topic 2: High-level talks between the leaders of North Korea and South Korea
The situation in North Korea welcomes signs of further relaxation. U.S. Secretary of State Pompeo said at a press conference on Thursday that during the past 72 hours, the DPRK and the United States have made great progress in consultations. However, they are still waiting for the move. If the two parties want to reach an agreement, they must make a resolute decision by Kim Jong Eun, Chairman of the State Council of Korea. Kim Ying-cheol, vice chairman of the Central Committee of the Workers’ Party of Korea, will go to Washington on Friday.
However, Pompeo also warned that the road to improvement of relations will not be smooth.
According to Xinhuanet, State Secretary of State Pompeo visited New York on May 31 with Kim Yingzhe, vice chairman of the Central Committee of the Workers' Party of Korea. He said that the two sides exchanged views on the meeting between the leaders of the two countries and the denuclearization of the Korean Peninsula. The U.S. and DPRK recently held consultations in the non-military areas of the DPRK and ROK, Singapore and New York. The past three days of consultations have "made real progress" in creating conditions for the leaders of both sides to meet. Pompeo said Kim Yingzhe will travel to Washington and transfer a personal letter to U.S. President Trump to North Korea’s top leader Kim Jong Eun.
According to reports from China International Television, the leaders of the DPRK and ROK agreed to hold high-level talks today. This is the third meeting between the two sides. Last weekend, North Korea made a second meeting with South Korea without any sign of urgency to demonstrate its position of mutual efforts for the denuclearization of the Korean Peninsula and agreed that the two sides will meet at any time and actively engage in dialogue. This move greatly compensated for the gap between South Korea and North Korea and effectively safeguarded the peace in the Peninsula.
According to the Yonhap News Agency, the high-level talks between South Korea and North Korea will be held at the South Korean-Pakistan Panmunjom. South Korean Unification Minister Zhao Mingjun led the delegation to leave for the meeting and said that he will do everything he can to establish a positive environment for the DPRK-U.S. summit talks and urge the leaders of the South and North Korea to reach a consensus. Smooth and rapid implementation.
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