We expect volatility around the tariff announcement: Markets we are watching today

Today President Trump is expected to approve the imposition of duties on $200 billion imports from China, the largest escalation in the trade conflict to date. We expect volatility around the announcement of tariffs, especially in the markets that will be affected the most.

We will monitor the following markets for investor sentiment around the world.

Industrial companies of the United States

American industrial companies are among the most exposed to risks around China, as it is among their major export markets. The escalation in the trade conflict is also the reason why the US industrial sector is among the weak-performing markets this year.

DJIA, Dow Jones Industrial Average, is an index of large, mostly industrial companies, most of which are exporters. This makes the index particularly exposed to international conflicts and global risks. Interestingly, days before the United States announced tariffs the index registered gains amid a global stock sell-off.

Bloomberg shows S&P500's industry-to-index ratios: since the beginning of the year, the industrial sector's weight in the index has declined.

The market sentiment towards exporting US companies will be displayed in the price action of DJIA today.

Small-cap companies

Since the beginning of the year, this has been among the strongest sectors in the markets. The reason is that small companies are perceived as isolated from trade conflicts, as small companies are concentrated mainly within their home markets.

We will be following the Russell2000 index, which is an index of small, American companies. So far, the index has remained above the support from its diagonal trendline.

Divergence points to a possible weakening of the upward trend. The massive sale of technological shares over the last few days points to a possible change in investor sentiment. So far, investors have been looking for safe haven in small, technology companies. A Russell2000 break below 1700 (diagonal support) may be the beginning of a complete change in sentiment.

Natural gas (NG)

China is among the largest importers of US natural gas. When the US imposed its last round of tariffs, China threatened to reduce its natural gas imports. This would foil one of Donald Trump's political goals: to turn the United States into a global energy powerhouse.

The long-term downward triangle can be broken after today's tariffs on $200 billion in Chinese imports. We will be tracking for a break out below the 23.6% Fibonacci level (around $ 2.7) as a confirmation of the market's negative mood towards natural gas.

Chinese Yuan (USD/CNH)

Over the last few months, the Chinese yuan is among the best barometers of the investor sentiment in the world, especially for investors' sentiment of geopolitical risks and sentiment towards the future of emerging markets.

Source: Bloomberg Finance L.P.

Charts: Used with permission of Bloomberg Finance L.P.

Read more:

• USA ADP Nonfarm Employment Change: 202K vs 160K
• Iran response was ‘too fast and too furious’ on the U.S. airstrike
• USA – ISM Non-manufacturing PMI: 55.0 vs 54.5
• Top 5 things to watch on Tuesday
• Noise: How to Overcome the High, Hidden Cost of Inconsistent Decision Making