Trade War Shifts to Atlantic

10/04/2019 9:27 am EST


Adam Button

Co-Owner and Managing Director,

The trade war’s focus shifted to the Eurozone as the WTO approved retaliatory U.S. tariffs on the EU, reports Adam Button.

Markets wilted again on Wednesday and Thursday as the market increasingly sours on the global economy. The United States was given the OK from the World trade Organization (WTO) to impose $7.5 billion in retaliatory tariffs on the EU. The USD was lower across the board Wednesday on resurfacing odds of a 25-basis point rate cut later this month following the slumping services ISM. All eyes turn to today's release of the services ISM for proof on whether the US services sector continues to escape the miserable fate of the manufacturing sector. It didn’t (see below).

Global equity sentiment crumbled on Wednesday for the second day. U.S. stocks fell nearly 2% while European markets sank around 3%. There wasn't a particular catalyst, rather it was a continuation of worries following the weak U.S. ISM non-manufacturing survey on Tuesday.

The US tariffs that will be authorized by the WTO on the EU will take effect on Oct 18. Their aim, according to President Trump, is to persuade the EU to reach a negotiated settlement.

On the Brexit front, Boris Johnson delivered his proposal to the EU and it included a call for the Northern Ireland assembly to vote on border deals every four years. It's a sort-of democratic backstop but doesn't answer the question of what happens if they suddenly reject a deal. The initial EU and Irish reception was chilly but not completely dismissive. A leaked memo from 10 Downing Street suggested calling the EU 'crazy' if it didn't accept the deal in a sign that Johnson may be angling more for an election rather than a deal. On the flipside, a report said as many as 25 Labor members of parliament will back the deal.

The pound was relatively stable but that might be more an indication of the broader market turmoil than a reflection of Brexit developments. Much hangs in the balance in the day ahead. If a deal begins to look possible, the pound could jump. GBPUSD remains supported above the 55-day moving average but has yet to make a lasting break above the 100-day. 

In terms of economic data, the September ISM non-manufacturing index came out at 52.6, below expectations. The consensus was for a modest slide to 55.1 from 56.4 in August. The weaker than expected report adds pressure on U.S. equities.

Adam Button is co-owner and managing director of and a contributor at You can see Ashraf’s daily analysis at and sign up for the Premium Insights. Ashraf's Tweet on indices here.

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