Oil prices bounce back after Trump’s tariff plan

Dollar falls on US job data

NEW YORK, Aug 3, (RTRS): Oil prices rallied nearly 3% on Friday, a partial rebound from their biggest daily drop in several years on US President Donald Trump’s promise to impose more tariffs on Chinese imports.

The tariffs, due to take effect on Sept 1, intensify the trade war between the world’s top two economies and oil consumers. Any resulting economic slowdown could hurt crude demand.

Benchmark Brent crude was up $1.74, or 2.9%, to $62.24 a barrel by 10:42 am EDT (1440 GMT). Brent slid more than 7% on Thursday, the steepest daily drop in more than three years.

The US crude benchmark gained $1.25, or 2.3%, to $55.20 a barrel, a day after tumbling nearly 8%, the biggest loss in more than four years.

Before the slide, crude futures had seen a fragile rally supported by steady drawdowns in US inventories but pressured by a shaky global demand outlook.

“We’re obviously coming back pretty substantially at least in the early going because I think people realize that the market was overdone with the selloff yesterday,” said Phil Flynn, an analyst at Price Futures Group in Chicago.

“Also, there are some questions as to whether the Trump tariffs are really going to go into effect and if they’re really going to have a negative impact on demand as much as people think.”

Trump said he would impose a 10% tariff on $300 billion of Chinese imports and could raise tariffs further if China’s President Xi Jinping failed to move more quickly toward a trade deal.

The announcement extends US tariffs to nearly all imported Chinese products. China said it would not accept “intimidation or blackmail” and pledged countermeasures.

Economy

The US economy expanded by 2.1% in the second quarter, government data showed on July 26, beating economists’ expectations but lower than first-quarter growth.

Still, there was evidence that the trade dispute was taking a toll.

China this week reported slowing manufacturing activity in July. US data showed manufacturing activity also slipped last month to the lowest in nearly three years, while construction spending fell in June as investment in private projects tumbled to the lowest level in 1-1/2 years.

The market looked toward the weekly US oil rig count, an indicator of future production, at 1 pm EDT. The United States last year became the world’s top oil producer and was forecast to set another record in output production this year.

Meanwhile, the dollar fell broadly on Friday as news of slower US employment growth in July and heightened US-China trade tensions fueled expectations that the Federal Reserve would cut interest rates again in September.

Nonfarm payrolls increased by 164,000 jobs in July, fewer than the month prior, and wages increased modestly, the Labor Department said. The report came a day after US President Donald Trump announced an additional 10% tariff on $300 billion worth of Chinese imports starting Sept 1, leading financial markets to almost fully price in a September rate cut.

Lowest

The dollar fell 0.76% against the Japanese yen to its lowest since Jan 3, last at 106.50. Versus the euro it was 0.22% weaker at $1.1109. The Swiss franc, which like the yen serves as a safe-haven investment in times of market volatility, was 0.83% stronger to 0.9818 franc per dollar.

“On balance it is probably a slightly dollar-negative number because I do think that the totality of the report increases the case for a Fed rate cut in September. We’re already at the point where we’re trading that,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.

The US central bank on Wednesday cut its short-term interest rate for the first time since 2008. Fed Chair Jerome Powell described the widely anticipated 25-basis-point monetary policy easing as a midcycle policy adjustment to protect US expansion from the global economic slowdown happening outside its borders.

Following the cut, the dollar rose in sympathy with US Treasury note prices, but that move had largely been retraced on Friday.

The chance of a September rate cut was 98.1% on Friday afternoon, according to CME Group’s FedWatch tool, a large jump from 56.2% a week prior. Not all market participants were persuaded.

“We think that’s way too high. Clearly what (Powell) wanted to convey at the press conference was that there’s no certainty about what the next move is going to be,” said Gershon Distenfeld, cohead of fixed income at AllianceBernstein.

“The reality is that if the intention was to ease monetary conditions, this did exactly the opposite. Equities are down, the curve is flatter, the dollar higher – all monetary tightening conditions here in the US. So they didn’t really accomplish much except getting markets nervous.”