Weekly Outlook

Weekly Market Overview: New Trade War Just Started

| 03 February, 2025 at 12:00 GMT

        It was not a surprise to everyone . US President Trump announced 25% tariffs on Mexico & Canada, 10% on China and warned Europe that he will slap tariffs on the EU very soon. What Mr. Trump wants is a very easy : buy our US products or / and come to America to build your business & start manufacturing your products here on the American soil, otherwise be prepared for the US new tariffs . By doing so, Trump wants to protect the US factories & workers, pushing US consumers to buy the America-made products & avoid buying the imported goods that will be exposed to  higher costs & more expensive prices. Will Trump’s strategy achieve his goals? According to Statistical  Abstract of the United States, Mexico is the biggest exporter to the US with $466B, followed by China $401B & Canada $377B, that’s why theses countries were the main target by Trump’s new tariffs, not to forget that both Canada & Mexico retaliated. 

        One of the biggest winners in the last week was USD  index – DXY that gained by almost 2%, heading higher to 109.40 the highest in two years, but why did USD index gain momentum? US dollar still offers higher returns vs other major currencies as the interest rate in America remained higher than the UK, EZ, Japan & China. As the new tariffs become inevitable by the global leaders, the cost of imports will hike & the global trade may start disrupting, resulting in higher inflation as well, that’s not what the Fed really prefers. 

Chart ( Trading view)  : 5Y chart of USD index & US interest rate. 

            As long as inflation in the US remains sticky, the Fed may not cut the rates quickly. Federal Reserve kept the interest rates unchanged at 4.5%in the last week’s meeting which means that USD ‘s strength remains intact for now. 

         In the meantime, gold gained by more than 1% in the last week, not far from the highest record at $2800 per ounce. Traders should realize that the higher the inflation, the more sustainable demand for gold is likely to stay. What lies ahead is that the global trade disruption, higher production cost due to tariffs,  rising tensions among the allies & weakening economic growth may force the central banks to quicken the interest rate cuts, that’s another bullish sign for gold bulls. Chart below shows that gold rose 6% YTD, followed by 7% in silver & 1.1% in USD index. Market’s sentiments may change quickly , so be careful in your risk exposure & bets. 

Chart : Bloomberg 

           Few months before, President Trump showed his full support to crypto world & trust in more global adoption , however it doesn’t change the fact that cryptocurrencies remained highly speculative. In just a week, major crypto currencies started falling strongly including Bitcoin that lost -7% in a week, followed by -18% in Eth, -24% in Cardano, and 22% in XR, but what exactly happened?

  Numbers : Trading Economics 

         Cryptocurrencies don’t like instability even if de-centralization is one of the major characteristics cryptos have. High risk assets including equities, cryptocurrencies and high-risk major currencies declined sharply on Monday due to the new tariffs by Trump’s admin & its consequences on the global economy. It is not the first time & will not be the last one that cryptocurrencies will be under huge pressure & panic selling dilemma. 

             As the numbers show below, major global equity indexes fell on weekly basis, SPX , Nasdaq , Dow Jones , DAX & Nikkei225. The performance of VIX index was somehow a  surprise to us as VIX used to gain in the times of instability & equity markets’ correction, however VIX increased by more than 24% on Monday, still down by only -7% on weekly basis this afternoon. Higher volatility ahead.