Gold soars as investors weigh latest tariff threat
NEW YORK/SINGAPORE - Gold hit a record high, the dollar was firm and Hong Kong shares advanced to a four-month peak on Tuesday as investors navigated shifts in U.S. trade policy and waited to hear from Federal Reserve Chair Jerome Powell on tariffs and inflation.
Gold prices in Oman on Tuesday
24 k - RO34
22k - RO34.7
18k - RO27.3
Oil prices clung to a sharp overnight bounce. Hong Kong's Hang Seng has rallied more than 12% in a month as Donald Trump's administration has threatened, then suspended, blanket tariffs on Canada and Mexico - seemingly confirming investor assumptions that everything is negotiable.
Trump on Monday lifted tariffs on steel and aluminum imports to 25%, pushing up share prices of U.S. steelmakers.
A tariff of 10% on Chinese imports took effect earlier in the month and retaliatory Chinese duties on U.S. energy and some goods came into effect on Monday. There has been little sign of progress toward a trade arrangement between Beijing and Washington, but expectations for a breakthrough remain high.
"He's a business person by nature, so there are deals to be done at some point," said Prashant Bhayani, chief investment officer in Asia at BNP Paribas Wealth Management. "So that's why the market's been measured."
In currency trade, the Chinese yuan has weakened past the 7.3 per dollar level and traded at 7.3071 on Tuesday morning.
The Australian dollar was steady at $0.6273, with Trump saying he would give "great consideration" to Australia's request for exemption on steel tariffs. Gold hit a record peak just above $2.935 an ounce. "This is still very early days," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
"The market's just sort of chopping around rather than directional right now.' Against the Japanese yen, the dollar was steady at 152.01 yen and it sat at $1.03 per euro The Canadian dollar and Mexican peso had slipped as those countries bear the brunt of Trump's metal tariffs.
On Wall Street, U.S. stocks closed higher, led by gains in the energy and tech sectors. The S&P 500 materials index rose 0.5%, buoyed by steel companies such as Nucor, up 5.6%, and Steel Dynamics, which advanced 4.9%. Shares of McDonald's climbed 4.8% after the fast-food restaurant reported quarterly results.
"Investors are saying, 'Hey, let's go back into the areas that worked.' And one reason that investors are optimistic, in my opinion, is because of earnings," said Sam Stovall, chief investment strategist at CFRA Research.
Europe's continent-wide STOXX 600 index rose 0.58% to close at a record high of 545.92 on Monday, led by a 1.5% climb in the oil and gas sector, where energy prices were spiking. Dutch and British wholesale gas prices rose to around two-year highs on Monday as colder weather increased demand for gas and storage withdrawals rose.
Fed Chair Powell is due to speak on Tuesday for the semiannual monetary policy testimony before the Senate Banking, Housing and Urban Affairs Committee. His comments on tariffs and inflation are likely to be closely monitored.
Markets are largely expecting the Fed to hold rates steady at its March meeting, with expectations for a cut of at least 25 basis points not climbing above 50% until June, according to CME's FedWatch Tool. Benchmark 10-year Treasury yields closed at 4.495% and were untraded in the Asia session owing to a public holiday in Japan.
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The longer the EU has to prepare its own support package for Ukraine, which should include getting it a lot of cash, the less the damage if Trump ultimately cuts off all US aid to the country. The president's own vulnerabilities may also increase over time. Just look at the spectacular end of his alliance with Tesla boss Elon Musk. The fragile US trade truce with China may break down causing more financial turmoil, making Trump less keen to pick a fight with the EU. If the Supreme Court stops him using emergency powers to impose tariffs, his negotiating position will be weaker. And tariffs could hurt the US more than its supposed victims, by pushing up inflation and crimping growth. A QUICK DEAL? Trump has zig-zagged in his trade threats and actions against the EU. The current state of play is that there are 50% tariffs on US imports of steel and aluminium from the bloc, a 25% tariff on cars and 10% so-called reciprocal tariffs on most other goods. And so they're trying to be the first and the best to get there, which is why everybody's throwing so much money at it without any clear sense of, you know, The US president has threatened to jack up these reciprocal tariffs to 50% if there is no deal by July 9. He is also looking at more 'sectoral tariffs', including on pharmaceuticals and semiconductors. While the EU has complained to the World Trade Organization (WTO), it has delayed its own retaliation. Its negotiators accept that they are unlikely to overturn the reciprocal tariffs, the Financial Times has reported. The bloc still aims to avoid the sectoral ones. Those on cars and any on pharmaceuticals would hurt it the most. It has dangled the possibility of buying more US equipment and natural gas to get a deal. An agreement on those lines could be good for the EU. It needs to beef up its defences and eliminate its purchases of Russian gas. 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The question then is how the bloc would react if Trump imposed higher reciprocal tariffs. The EU has so far imposed no countermeasures. Though it has agreed to tax 21 billion euros of US imports in response to the steel and aluminium tariffs, it has delayed these until July 14 to try to get a deal. The European Commission, its executive arm, is also consulting on taxing a further 95 billion euros of US imports in response to the car tariffs and the reciprocal ones. But added together, these tit-for-tat measures would be equivalent to only a third of the 379 billion euros of EU imports subject to Trump's tariffs. Some analysts think the bloc needs to be tougher. One idea is to crack down on American services, where the US had a 109 billion euro surplus with the EU in 2023. Another is to activate its 'anti-coercion instrument ', which would allow retaliation against US companies operating in the bloc. Yet another is to threaten to ban exports of critical goods, such as the lithographic equipment necessary to make semiconductors. Extreme events may require extreme responses. But for now, the EU should keep its cool. It should not kid itself that it is stronger or more united than it is. It should remember that Trump may get weaker with time. And it should never forget Ukraine. — Reuters Hugo Dixon The writer is Commentator-at-Large for Reuters. He was the founding chair and editor-in-chief of Breakingviews.
