Risk mood shaken up ahead of European trading

• US government has indefinitely banned Nvidia from selling H20 chips to China
• US chip equipment makers calculate Trump tariffs could cost them more than US$1bn a year

S&P 500 futures are down 0.9% and Nasdaq futures down 1.6% as we come to terms with the headline above. US-China tensions continue to boil and that remains the biggest wildcard for trading sentiment at this stage. As things stand, there’s no indications of either side coming to the negotiating table still.

The thing about all of this is that with each passing day, market players will really have to think about the ramifications of all these tariffs and restrictions. It is clear that all of this is going to have a negative impact on the global economy. But I reckon there is still some quarter in the market that is hoping that things don’t go too far, so as to not worry about thinking at all.

However, even with this just lasting two to three months there is going to be a major hit to the economic landscape. And just like any earthquake, the aftershocks are also still something to be wary about. There might be trade deals but it might not be as simple as turning on and off the tariffs button. If the 10% reciprocal tariffs do stay, that’s still a major blow. And this is not even discussing what is happening with China at the moment.

I will admit that I myself may not even have a full grasp of the extent of the pain this could have on the global economy. But it’s all about reading sentiment when it comes to trading, and I would argue that you can’t just ignore the economic pain and fallout from the trade war even if things do not get much worse. Because at present, it is already bad enough.

I mean, hard data doesn’t lie. And this is one of the early indications of that.

As traders, we make decisions based on expectations. But this is one of those rare occasions where you can’t just factor in expectations on how the trade war is developing, but also expectations on what this could all do to the global economy even if just for the short-term.

Taking that into consideration, I’ll go back to the question that needs to be asked at this stage. Are we shifting more to a risk landscape of selling on rallies rather than buying on dips? Perhaps. With every day that passes, we are moving one step closer. At least until the turbulence goes away and we have more clarity on the damage that is done.

This article was written by Justin Low at www.forexlive.com.