The FTSE moved lower across the session weighed down by trade war nerves ahead of Trump’s trade talks with EU Commissioner President Jean Claude Junker; a mixed start on Wall Street among traders anticipating complete mistaken blow-up on trade tariffs/war between European Union and the USA.
Going into the trade summit Trump has been clear on his objectives, a fair-trade deal or tariffs- for Trump it is as simple as that. The White House has already placed tariffs on EU steel and aluminium imports and has made threats to place tariffs on European car and car part imports; moves which have already damaged business confidence in the eurozone and could cause significant damage to the German economy, which is a large producer of automobiles.
Retaliation from the EU has been minimal so far, as the EU looks to reduce tensions and avert further damaging levies. However, the EU trade commissioner has also announced today that they are preparing for retaliatory measures, just in case.
Up until now emerging market China has been the principal focus of Trump’s war on trade. However, attention is now turning to the EU. A ramping up of trade tension and tariffs between the US and the EU could have more serious consequences, potentially leading to a crisis or even a full-blown recession.
Expected outcome of Trump Juncker trade summit?
General sentiment will be affected by the outcome of the talks meaning indices are likely to respond; however, the EUR/USD is the main stakeholder. The EUR/USD has been trading in a tight range since May, a big headline today, could see the pair breakout.
Following the trade summit, a move towards more in depth talks between the leaders, could boost the euro, as this would suggest that the tariffs are on hold for the time being and Trump could soften his stance. Alternatively, and more likely given Trump’s past track record, there is a high probability that no agreement will be reached between the two leaders. In this scenario we expect to global sentiment dampened and the euro to take a hit, looking to target $1.16.
What to expect from Facebook?
Facebook traded cautiously higher on Wednesday as traders look towards its Q2 results after the closing bell. Q2 was a particularly crucial quarter for the tech giant following the Cambridge Analytical scandal and increased data protection regulation in Europe, from the introduction of GDPR. The scandal has not caused permanent damage to the value of the stock, with the share price recovering from a pummelling in April and May and is currently 17% higher year to date. Traders will want to see this optimism reproduced in earnings.
Earnings per share is expected to hit $1.71 on revenues of $13.34 billion, up from earnings of $1.32 on revenue of $9.32 12 months earlier. Monthly active users are expected to hut 2.25 billion, up 2% from Q1.
After Alphabet’s forecast smashing performance earlier in the week, the pressure is on Facebook to perform.