Trade tensions between the US and Canada have reignited as President Trump threatened new tariffs on Canadian goods in response to Canada’s proposed digital services tax targeting US tech giants. The tax was a key point of contention, with Canada eventually scrapping it to avoid further escalation. Negotiations for a new trade agreement between the two nations are now set to conclude by July 21.
Conversely, the US has implemented a trade deal with Britain, which has lowered tariffs on British car exports and removed duties on aircraft parts. However, unresolved steel and aluminium tariffs could lead to a 50% tariff increase for Britain starting July 9. These trade developments have introduced volatility into the markets, impacting global financial conditions.
The stock market has experienced a rally amidst these trade tensions, with the S&P 500 breaking record levels and showcasing bullish momentum. Similarly, the Nasdaq has reached new highs, reflecting strong upward trends. In contrast, the Dow Jones Industrial Average has yet to break out, hinting at a divergence among major indices.
Financial conditions have shown improvement, with the Chicago Fed National Financial Conditions Index dropping and 10-year Treasury yields declining to support risk assets. Despite this, the Dow Jones US Index lags behind the global Dow Jones World-x-US Index, indicating strength outside the US market.
While market performance remains robust, economic indicators paint a less optimistic picture. The Conference Board’s Leading Economic Index has declined, signaling recession risks despite the market’s positive performance. Moreover, new orders for goods continue on a downtrend, suggesting lingering recession concerns.
Technical analyses reveal that the S&P 500 has broken record highs after retesting key support levels, indicating potential upward movement. The Nasdaq has also surged with a strong technical breakout, while the Dow Jones, though lagging, shows signs of a breakout from a bullish formation at support levels.
The US Dollar Index is approaching critical support levels, hinting at bearish pressure that could lead to further downtrends. These developments underscore the complex interplay between trade dynamics, market performance, and economic indicators in shaping the current financial landscape.
Muhammad Umair, a finance MBA and engineering PhD, provides expert analysis on currencies and precious metals. With a data-driven approach, Umair offers valuable insights into market trends and trading strategies. His expertise underscores the nuanced interactions between geopolitical events and financial markets, guiding investors through dynamic market conditions.
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