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US Delays China Tariffs, Triggering Market Reversal

Karl Schamotta August 13, 2019

Currency markets are staging an across-the-board reversal after the Trump administration announced it would delay the imposition of proposed tariffs on a number of key Chinese import categories.

In a release posted on its website this morning, the Office of the United States Trade Representative said that a number of products would be removed from a previously-released list, with health, safety, and national security factors mooted as reasons for exclusion.

According to the announcement, tariffs will also be delayed until December 15 on cell phones, computers, video game consoles, toys, clothing and footwear.

With financial markets (and Fox News) signaling disapproval of the latest round of tariffs over the last week, the move appears designed to alleviate pressure on American consumers as they head into a critical holiday-punctuated election season. Retailers are now likely to stockpile goods ahead of the deadline – lifting gross domestic product prints, while reducing some of the inflationary pressures highlighted in our market update of less than an hour ago.

Equity and commodity markets are rebounding on the news, while risk-sensitive currencies like the Canadian dollar are rallying from levels reached earlier this morning.

The offshore Chinese yuan is spiking higher but remains well below the critical 7-to-the-dollar level breached early last week.

Bottom line: Although clearly taken with the aim of furthering political objectives, the decision to postpone additional tariffs on China will be encouraging news for global markets – but may be too little, too late. Business uncertainty has risen to crippling levels in many major economies, concern appears to be spreading into tertiary sectors – and if events over the last two weeks are any indication, the proximate trigger isn’t changing his ways.

Karl Schamotta
Chief Market Strategist

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