Markets dislike Trump's on-off tariff talk

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place at the weekend. 

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

This will be until Sunday 30th when we change our clocks in the UK.

Trumps on-off tariff policy continues to unsettle the markets.  US equity markets dropped once again as Trump continued his war on trade.  Yesterday he said he would impose an additional tariffs on Canada in response to Ontario’s electricity price increase.  He also said he would shut down automobile manufacturing in Canada.  USDCAD traded to 1.4520 as incoming Canada PM Carney said the tariffs are an attack on Canada and that they will not back down until the US shows some respect and commits to free trade. 

Some backtracking followed on both sides, Trumps team saying no new tariffs had actually been signed, and then Ontario’s Ford said he would not move forward with his price increases.  USDCAD fell to 1.4380, however it is back up at 1.4450 as Trump failed to confirm the tariff reversal.  Separately, BoC meet today, a 25bps cut to 2.75% is widely expected, something of an insurance policy against a possible trade war.  A 50bps cut had, for a while, been touted a while ago but the market sees this as just an outside chance for now.  I’m not so sure, and wonder whether an overnight 1.4500 usdcad call could be a decent bet at around 20 cad pips. 

The EU have said they will restore tariffs on certain US goods, and impose some new tariffs, from 1st April in response to US actions.  Also in Europe, the Portuguese government has collapsed after the PM Montenegro lost a confidence vote following allegations of corruption in his family business.  Another general election, the third in three years, will take place.  Montenegro came into power in March 2024 after the previous PM, Costa, stepped down after an investigation began on certain members of his administration.  Costa didn’t disappear off the scene mind you, he is now the President of the European Council. 

Trump imposes and then reverses tariffs at such a rate it is difficult to know what is actually in place, what may come into place and what is unlikely.  Tariffs have been met with disapproval at home and abroad.  US business owners and lawmakers have reportedly been calling the White House demanding action is taken to calm markets by having a more focussed and predictable tariff agenda.  Meanwhile Australia has said tariffs are unfriendly and entirely unjustified. 

USDJPY had a bit of a volatile day, trading down to 146.55 early on Tuesday morning but has since rallied to 148.60.  Difficult to put a finger on what was behind the move other than the same uncertainty over the global economy.  I’d have expected to see some comment on interest rates perhaps, but I haven’t seen any talk suggesting an interest rate rise in June or possibly July is less likely.  Slightly lower wage increases from car manufacturers may also have impacted JPY. 

After talks with US in Saudi Arabia, Ukraine has said it is ready for a thirty day ceasefire, which now leaves the ball firmly in the Russian court.  I still cannot see Putin just stopping, but lets hope I am wrong and that some peace negotiations can begin.  US have reopened access to their intelligence for Ukraine, and minerals negotiations are soon to take place.  Trump thinks he may speak to Putin soon.  The hopes for some sort of peace pushed EUR higher, with EURUSD reaching a high of 1.0945 (now 1.0920) and GBPEUR down to mid-1.18’s.

US CPI is out this afternoon, perhaps not the key driver at the moment but expectations are for headline to drop 0.1% to 2.9% and core to also drop 0.1% to 3.2%.  We’d probably need to see a larger decline to really impact the US dollar.   Also on the calendar is a Fed official speaking which is rather odd given we are int eh Fed’s blackout period ahead of next weeks rate meeting.  Perhaps I’ve got that wrong.

In sport, Liverpool were dumped out of the Champions League as they lost to PSG on penalties.  Arsenal and Aston Villa are in action this evening, both teams holding a decent goal advantage from the first leg.  Leeds Utd play tonight as well after both Sheffield Utd and Burnley could only manage draws in their matches last night. 

I feel a little sorry for race-goers as Cheltenham enters its second day.  It perhaps started one week too late given the impressive weather we had last week.  I have seen reports of snow in Cheltenham today, let’s hope it warms up for the racing. 

Have a great day…

-  12.30 US CPI

-  13.45 BoC rate announcement

-  13.45 ECBs Nagel speaks

-  14.30 BoC press conference

-  15.15 ECBs Lane speaks

-  17.35 Feds Musalem speaks

-  18.00 US monthly budget statement

-  00.00 AUS consumer inflation expectations

US equity markets hit the hurdles, let's hope the Cheltenham runners don't

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place at the weekend. 

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

This will be until Sunday 30th when we change our clocks in the UK.

US stocks dropped sharply yesterday after warnings from Trump that the US economy may experience something of a ‘transition’.  It seems clear his tariffs will push inflation higher, although Trump hasn’t said as much, nor has he confirmed whether the US could be facing a recession.  Both DJIA and S&P500 were down 2% and 2.7% respectively, while Nasdaq dropped 4%.  European markets were also lower, not quite to the same extent as the US markets, although futures pricing suggests a positive opening this morning.  US 10 year bond yields are lower as markets price in more Fed rate cuts.

This equity price drop will not please Trump at all, who would have been hoping his pro-US stance would boost the US markets, and he now has to accept that even if this does prove to be true, it will take some time to materialise.  The opposition to his tariffs, both domestically and overseas, has been harsher than he probably expected.  For example, Ontario have announced a 25% increase in electricity prices to all power exported to three US states, and has threatened to turn off supplies altogether.  Trump has warned Canada that US will ‘get it all back’ come 2nd April.  USDCAD is just above 1.4400 as I type, having been up to 1.4470 overnight after yesterdays London close.

The price move won’t please Elon Musk either, his Tesla share price dropped some 15% yesterday in a move that many regard as backlash against his political involvement, leading Trump to defend Musk against ‘left lunatics’ and says he’ll buy a new Tesla today in a show of support.  Musk has confirmed that Twitter (I will never get used to ‘X’) has also been attacked, this time by hackers in an attempt to bring the platform down.

The US dollar dropped yesterday, GBPUSD slipped back to 1.2860 while EURUSD hit a low of 1.0805.  Both pairs are higher, GBPUD now just a touch above 1.2900, EURUSD just a few pips short of 1.0900.  Worth noting the relative strength of EUR.  GBPEUR has hit a low this morning of 1.1850, quite a shift from yesterdays highs around 1.1940 and a move that has certainly taken me by surprise.  We know the German government 10 year bond yields move had dragged EUR higher early last week but it has been relatively stable since then.  The Green Party rejected Merz’s finance package that would have enabled billions of Euros in defence and infrastructure spending, but there has since been some headlines suggesting a deal could be agreed this week. 

Perhaps the hope of a Ukraine ceasefire is helping the prop of the single currency.  US SecState Rubio has said Ukraine will need to concede some territory for a peace deal, whether this means territory already lost or more territory on top of that remains to be seen, but I’d imagine Putin would want more than he currently has and Trump would most likely give it to him.  A Trump envoy, Witkoff, is said to be travelling to Russia to meet Putin, the first face-to-face meeting between US officials and Putin since 2021 when Biden met the Russian leader in Switzerland.  Meanwhile Moscow has been hit by a drone attack from Ukraine overnight, Russia says it shot down or intercepted all 337 drones that were launched. 

USDJPY was down at 146.60 overnight.  It is now 147.10, talk is that the next BoJ rate rise will come in June. BPJPY trades just around 190.00.

In other news, a collision between a tanker carrying jet fuel for the US military, and a large container vessel, has led speculation as to whether the collision was deliberate, indeed whether the Portugese registered Solong had been hacked into.  I’m not sure if this is possible, but I think back to the mysterious events surrounding the US container ship ‘Dali’ when it hit the bridge in Baltimore last March having lost all power. 

Liverpool are in action in the Champions League this evening, carrying a one goal advantage into their tie with PSG after the first leg.  Meanwhile, Sheffield Utd and Burnley could both go above Leeds in the Championship table if they win their respective matches this evening.  Burnley still have this incredible record of only having conceded ten league goals from the 36 matches played so far.  Quite amazing.  

A very light calendar today, just US JOLTS jobs data, but attention will be focussed on US equity markets and Ukraine peace talks.  In case it’s a quiet day, Cheltenham starts today and Constitution Hill, unbeaten over hurdles, is odds on favourite to win the 16:00 having won the race back in 2023.  It missed last years race due to illness.  I have no tips to offer I’m afraid and I’m out and about for much of the day so probably won’t get much of a chance to watch it. 

Have a great day……

-  14.00 US JOLTS job data

Could be in for a quieter week as nonfarms out of the way, FOMC rate decision next week

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place at the weekend. 

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

This will be until Sunday 30th when we change our clocks in the UK.

Well what a splendid weekend, the sun was shining, the weather warm, and everyone seemed in a generally better mood.  I spent some time in the garden, actually mowed the lawn although it didn’t really need it, but it just looks so much neater when it is cut and rolled.   I also took time to sit out and just take it easy for a while, admiring my freshly cut lawn.  The forecast this week is for less sun and colder temperatures, so I hope you managed to get out and enjoy it while you could.

A slightly lower nonfarm headline Friday, with an uptick in the unemployment rate to 4.1% and a small decrease in the average hourly earnings data offered USD sellers hope that they are well-positioned.  GBPUSD traded up to match the morning high of 1.2945, EURUSD rallied to 1.0885, and levels of of 1.3000 and 1.1000 started to be talked about.  Since then however the move has run out of steam , GBPUSD is back to 1.2890, EURUSD to 1.0820.  USDJPY at 147.15 is currently just a few points off recent lows which came in just below 147.00.

Ukraine are already feeling the effects of losing US backing, as they lose ground in Kursk that they have taken and held for some time now.  I think Zelensky and Trump are due to meet this week, let’s hope that goes better than their previous meeting, or at least hold talks behind closed doors.  Before then, US and Ukrainian officials are to meet in Saudi Arabia today.  I’d imagine these talks are more aimed at signing a minerals deal than looking at a lasting peace process, but I hope I’m proved wrong.

In Canada, Mark Carney has been elected as their new PM.  If you recognise the name, it is because Carney was our own BoE Governor back in 2013, through to March 2020.  Before then he was the governor of Canada’s central bank, so he is certainly experienced in the financial field, if not the political arena.  He’ll have his work cut out, given Trump’s ‘yes/no’ approach to tariffs.  He may also not be PM for long, as there is talk of a federal election as early as this month.  Carney joins just as China impose 100% tariffs on some Canadian foods in retaliation to tariffs Canada have previously imposed on China.   USDCAD is currently 1.4375.

The end of his tenure at BoE came just as Covid lockdowns were coming into place, pretty much exactly five years ago, give or take a day or two.  It is odd looking back on those days, where we were not allowed to go out, kids didn’t go to school and the world all but shut down, barring some essential services.  I do admit that I was lucky.  We had three kids but a big enough house that we were not all on top of each other, like so many were.  We also had a decent garden and some impressively warm and dry weather that allowed us time outside to sit and listen to the birds sing without the background of cars or lorries moving around. 

Of course, we also got lucky when my wife was taken to hospital with Covid.  She was in a very bad way and we all knew what happened to many people who were taken to intensive care with the virus.  Fortunately, this was in 2021 so a lot had be learned about the virus over the previous year, and a last throw of the dice with an experimental drug did the job, she was home a week or so later with no lasting effects that we know of.

A busy weekend for sport.  Spurs managed to grab a draw against Bournemouth, Arsenal failed to close the gap on Liverpool as they only drew at Man Utd, Liverpool now have a fifteen point lead in the league table.  Notts Forest beat Man City to stay in third spot, now just four points behind Arsenal.  If anyone speaks to Mark today, don’t mention Leeds, who slipped up yesterday, losing to Portsmouth.  Still, Leeds do remain top of the league on goal difference. 

England’s rugby team kept their hopes of the six nations title alive with a decent win over Italy.  England are now second in the table with just one match left against Wales who are currently at the very bottom of the six countries.  England will need a big score plus hope other results go our way.  Unlikely, but stranger things have happened.

Congratulations to India for their win in the cricket Champions Trophy final yesterday, they beat New Zealand by four wickets.  It looked like it might be something of a formality as India scored over 100 with no loss in pursuit of a pretty low 252 target.  Three quick wickets put Indian nerves on edge, but they soon settled down and reached their target with an over in hand. 

It is European football this week, most English clubs, other than Spurs, are in good positions after their first leg matches.  Horse racing fans will be enjoying Cheltenham this week, I hope the weather holds out for that.

After a busy week last week, we’ve got a much lighter economic calendar this week, with US CPI inflation likely to be the highlight on Wednesday.  We won’t hear from any US Fed officials as they are in their blackout period ahead of the FOMC rate decision next week.  We’ll be watching for any Ukraine news, plus of course we still have the issue of the global economy struggling in the face of so much uncertainty. 

Have a great day…

-  13.00 ECBs Nagel speaks

-  23.30 AUS Westpac consumer confidence

-  23.50 Japan GDP

-  00.01 UK BRC retail sales