Financial markets: another volatile week ahead?

Business Recorder

2 days ago

Switzerland is the next nation to make headlines following the impact of Indian imports under 'reciprocal tariff' pressures.
The Trump administration's imposition of a 39 percent import tax on Swiss products is the highest seen, contributing to a nearly 38-40 percent deficit for the US. The estimated effective tariff rate in the US stands at about 19 percent.
This situation has exerted stress on the Swiss Franc, which fell before partially recovering over the weekend. The new tariff on Swiss imports is approximately 2.5 times greater than that levied on goods from the European Union.
In response, the Swiss President quickly traveled to Washington to negotiate a potential deal aimed at protecting key industries, including chocolates, watches, gold and machinery. But returned without any agreement. Backdoor talks are underway.
However, the gold sector is particularly impacted, as possible tariffs on 1 kg gold bars threaten to disrupt Switzerland's substantial gold refining business. This development underscores the need for further clarification on the matter, particularly because futures in New York depend on Swiss gold bars, the primary source of gold bars.
The market is currently awaiting a response from the White House regarding whether an executive order might ease the situation. Switzerland is actively pursuing diplomatic measures to resolve the crisis, which largely hinges on Washington's willingness to offer some form of relief.
Tariffs continue to be an unresolved topic with countries like China, Japan, Canada and India, an issue unlikely to be settled soon, potentially affecting the global financial system until it is resolved.
On the US economic front, the past week has been relatively quiet in terms of data releases. Nonetheless, the ISM service figures published last week fell to 50.1, indicating a decline in the Us economy as it approaches the crucial 50 benchmark, below which signifies contraction.
The outlook remains discouraging as business activity, confidence, new orders, and employment are all on the decline.
This week, the market will focus on the US consumer price index (CPI). Following a disappointing jobs report that indicated a decline in employment, combined with strong labour productivity, concerns about stagflation are rising.
Furthermore, the tariff rates that the US has implemented on its trading partners are currently in effect, showing signs that the economy is benefiting financially from these actions.
However, the full impact of the tariff costs on US importers has yet to be felt, as there is typically a lag time. This situation poses risks to growth while potentially driving inflation higher.
Another significant development on the horizon is President Donald Trump's anticipated meeting with Russian President Putin to discuss the ongoing war in Ukraine, although the date and location of this meeting remain unknown at this point in time.
In the meantime, as expected, the Bank of England (BoE) has slashed its rate by 25 basis points from 4.25 percent to 4 percent. A 5-4 vote indicates that policymakers are concerned about inflation exceeding target levels. Future cuts are likely to be postponed until next year, as the BoE waits for clearer signals until inflation subsides.
This week, the market will seek more clarity on the US tariffs regarding gold bar imports from Switzerland. While there are claims from the White House labeling reports about gold tariffs as 'misinformation,' official clarification is still necessary.
Market participants will also be monitoring updates regarding the potential Trump-Putin meeting. Initially, these two factors are expected to affect gold prices.
Beginning Tuesday, the market will closely track the release of US economic data. On Wednesday, some Fed officials will be speaking at key events. Thursday will bring data on the US producer price index and jobless claims, while Friday will see announcements on US retail sales, the NY Empire State Manufacturing Index, and the preliminary Michigan consumer sentiment index.
Overall, the financial markets are likely facing another volatile week ahead.
WEEKLY OUTLOOK — Aug 11-15
GOLD @ US$ 3398— After witnessing some volatility, the market may be poised for another chaotic week. If gold surpasses the US$ 3430-35 range, the next target to keep an eye on is US$ 3455-60. On the downside, a drop below US$ 3372/75 could lead to further declines.
Upside momentum is likely to persist as long as tariff and geopolitical uncertainties prevail. However, any reduction in uncertainty will lead to fall in gold prices.
EURO @ 1.1640— Euro might gain some strength. If it breaks past 1.1710, it could pave the way for a rise to 1.1760. Support is found near 1.1570, which should hold firm. Otherwise, we may see a drop to 1.1520.
GBP @ 1.3451— Pound Sterling is anticipated to see further gain towards 1.3525-35. A breakthrough at this level would suggest a move toward 1.3590-00.
Support at 1.3350 is expected to remain intact, but if it doesn't, we may see a decline to 1.3290.
JPY @ 147.73— The $/JPY pair finds solid support at 146.40, which is expected to hold for the upward movement. A break above 148.90 would boost confidence toward reaching 149.50. Or else watch for 145.80.
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