Markets breathed a sigh of relief


President Trump’s trade policy towards China continues to throw up surprises. Markets breathed a sigh of relief in the middle of last week after conciliatory words from the White House’s National Economic Council Director, Larry Kudlow.

He was reported to have said "Remember, none of the tariffs have been put in place yet. These are all proposals. We’re putting it out for comment. There’s at least two months before any actions are taken. China by the way did not enact the tariffs.” However on Friday, Trump raised the stakes dramatically, by asking for trade officials to consider ways of applying import tariffs on a further $100bln of imports from China. Initially the market took this news in its stride, but, as if to make sure he was being taken seriously, Trump acknowledged via Twitter that his approach to China could cause “a little pain” – a large sell-off in equities ensued and Brent fell back to 66.86 $/b.

The alleged chemical attack in Syria over the weekend has brought its conflict back into focus. Trump, again via his favoured channel of twitter, responded saying: “President Putin, Russia and Iran are responsible for backing Animal Assad. Big price...” This leaves oil markets with two key points to ponder. 1) Will the US now launch air or missile strikes on Syria targeting Assad’s ability to deliver chemical weapons? Indeed there has already been speculation that the US was behind an attack on one of Assad’s airbases overnight, though the US has so far denied this. 2) Will there be further steps taken against Russia and Iran which Trump has identified as being Assad’s key backers? Having announced further sanctions against Russian oligarchs only a few days ago, could this latest incident increase the probability of sanctions being re-introduced against Iran when Trump reviews the waiver on the 12th May?

Technical support for Brent from trend-lines and moving averages are now converging in the 65.50 to 66.50 $/b price range. This area is now crucial for Brent and the front contract is not far above it. However if Brent can catch a bid, possibly on the geopolitical risks, a move through 68 $/b would suggest a break-out of the recent downtrend. A move through 70 to 71 $/b could enable a move towards fresh highs.

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