Talk Shifts Back to Tariffs, But Deadline May be Postponed Until August

Also, 30-year T-bond, silver, natural gas and Australian dollar f utures

1. S&P 500 E-mini futures (/ES): -0.18% 
2. 30-year T-bond futures (/ZB): -0.41% 
3. Silver futures (/SI): -1.68% 
4. Natural gas futures (/NG): -2.05% 
5. Australian dollar futures (/6A): -1.04% 

After signing his sweeping tax legislation at the end of last week, President Donald Trump has turned his attention back to his trade war. Administration officials have been on the media circuit in recent days touting progress – or lack thereof – with respect to trade negotiations. While “90 deals in 90 days” was the measuring stick set forth in April, it now appears that tariff rates will start Aug.1 (not July 9). Traders are not happy with the shift in attention back to tariffs, with a wave of de-risking hitting the tape across all market sectors.   

Despite climbing to fresh all-time highs intraday on Thursday, traders were quick to jettison risk heading into the weekend around a slew of comments from Trump and his cadre of cabinet officials regarding the implementation of tariffs over the next few weeks. While the “TACO trade” has gained (begrudging) popularity, traders are going to be put to the test with a recently favored trading strategy. The modest drops seen thus far by the S&P 500 (/ESU5) and Nasdaq 100 (/NQU5) have been accompanied by more than a one-point rise in the spot VIX. 

The prospect of reducing trade with major buyers of U.S. Treasuries has been an albatross around the bond market’s neck since the tariff saga began in the first quarter, and we’re reminded of that fact today. The increase in global trade uncertainty may be translating into greater risk premia at the long-end of the curve. This week, there are three-year note, 10-year note and 30-year bond auctions (Tuesday through Thursday, respectively). 

The materials, metals and mining sectors have displayed a great deal of sensitivity around tariff headlines since April, and today’s price action is no different. But like in earlier episodes this year, weakness around tariff headlines has ultimately been an opportunity for bulls in both precious metals and copper. For now, silver prices (/SIU5) may have failed in a bullish breakout attempt; traders may want to keep an eye on the daily candlestick, which has bearish key reversal potential. 

Crude oil prices (/CLU5) rose to start the week despite a move by OPEC+ to hike output more than expected for August. The cartel announced that it will raise production by 548,000 barrels per day (bpd), exceeding the expected increase of 411,000 bpd. So far, output from the group has lagged behind the announced amounts, with nearly all of the extra supply coming from Saudi Arabia. Riyadh announced over the weekend that it would raise prices for its crude deliveries to Asia, signaling it sees strong demand for oil. Last week’s jobs report also helped to provide a tailwind for the commodity.  

Australian dollar futures (/6AU5) fell over 1% this morning. The risk-off tilt in equity markets is dragging on the risk-sensitive Aussie dollar as tariff announcements cloud the outlook for traders. Bets on non-dollar currencies have been strong so far this month, with traders betting on another round of weakness for the dollar ahead of the Federal Reserve’s expected interest rate cuts later this year. Today’s move brings prices below the 21-day exponential moving average for the first time since late June.  

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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