• Beijing hits back after being branded a currency manipulator by Washington; yuan steadies
• European shares rise after strong German factory orders

9.43am BST

Gold has hit a fresh six-year high, rising above $1,473 this morning, after Beijing hit back at Washington’s branding of the country as a currency manipulator.

Asian stock markets were painted red overnight but shares in Europe have stabilised, no doubt helped by the strong factory orders data from Germany this morning. Germany’s Dax has risen 0.46%, France’s CAC is up 0.67%, Spain’s Ibex has edged 0.09% higher and Italy’s FTSE MiB is 0.25% ahead.

9.24am BST

UBS, the Swiss investment bank, has sent us its analysis of the impact of the 10% tariff on $300bn of US imports from China threatened by Donald Trump last Friday.

The direct impact of the new tariffs, if implemented, would reduce US GDP by 0.15%, and we estimate Chinese GDP growth in the next 12 months could fall by 0.25–0.5 percentage points as a result, which would push the country’s growth rate below 6% into 2020.

China’s response to recent trade escalations has been relatively measured and we expect a similar reaction this time, with retaliation involving a mix of more tariffs and non-tariff measures. Potential non-tariff measures include a managed depreciation of the yuan to mitigate the trade impact from higher tariffs, penalising select US companies operating in China, and imposing export restrictions on rare earth metals.

There is still time to find a compromise, trade talks between the US and China scheduled for September have not been called off, and investors should also consider potential offsetting factors such as rate cuts by central banks and stimulus in China. Our base case assumes a long, drawn-out negotiation process, during which tensions can occasionally flare up.

An environment of a) rising trade tensions and b) potential stimulus, including falling interest rates, is tricky for investors to navigate. While we ultimately believe that US–China tradetensions will be resolved through negotiations, we think equities may struggle to move markedly higher until there is greater certainty.