Forex today was volatile with the VIX at 25 at one point. US equities and bond yields headed south as President Trump insisted on steep tariffs on steel and aluminium imports despite strong resistance from business and Congress.
Trump told steel and aluminium executives who were meeting at the White House today, executives from U.S. Steel Corp. X, +5.49% , Nucor Corp. NUE, +2.75% and Century Aluminum Co. CENX, +6.48% ,that tariffs would be put on imports “for a long period of time.” The US president proposed 25% for steel imports and 10% for aluminium and would sign orders as early as next week. “You’ll have protection for a long time,” Trump said to the executives.
However, not all Republicans are content with such a move. Fellow farm-state Sen. Sasse said, “you’d expect a policy this bad from a leftist administration, not a supposedly Republican one.” Republican Sens. Ben Sasse of Nebraska and Pat Roberts of Kansas argued against Trump’s announcements, with Roberts warning of potential retaliation from trading partners and saying it’s “terribly counterproductive for the [agriculture] economy.” Also, the EU announced that it will ‘firmly react’ to Trump tariffs will be bringing forward countermeasures. The Canadian Trade Minister said that any US aluminium, steel tariff on Canada is ‘unacceptable’.
Elsewhere, we had more Fed speak with NY Fed’s Dudley who was upbeat, saying, “greater confidence the US will grow above trend,” though he added it would be hard to tighten aggressively with inflation low and that four hikes in 2018 would still be gradual. Then, Fed chairman Powell reiterated key points from Tuesday’s House testimony although in Thursday’s Q&A he was less hawkish around points such as his assessment of wage and inflation risks when he said that he sees no ‘strong evidence’ of a decisive move up in wages.
The DXY within all of this was trading between 90.207 – 90.932, held up at the 55-D SMA while 10yr treasury yields pushed up to 2.86% then slid to 2.81%, while 2yr yields fell from 2.26% to 2.21%. 2658.03 had been the low in the S&P ahead of the close, pressured further below its 21-D SMA and falling away now from the hourly smas. The Dow was falling 600 points and has broken trend line support and Feb 21st previous low.
As for other currencies, EUR/USD bounced off 1.2155 to 1.2235. GBP/USD was suffering amoungst heightened Brexit angst and, for the time being, puts aside the upside risks with respect to the BoE’s recent hawkish forward guidance. GBP/USD was offered in European trade to a low of 1.3727. 1.3778 was hit up on the back of a slide in the dollar in early NY before dollar bulls piped up again sending cable into a chop for the session between 1.3711 and 1.3785 on the protectionist/tariff/Trump headlines. PM May will be in the spotlight on Friday where she needs to convince both the UK and EU of a resolve to manage UK trade post-Brexit.
EUR/GBP was a one-way street pretty much from the start of Wall Street’s day rallying from 0.8779 to 0.8908, surpassing the 13-day peak of 0.8877 that was scored during the European’s morning. The cross ended NY at a 13-day high as traders got out of sterling ahead of May’s speech on Friday. European Parliament says UK Government’s concessions on citizens’ rights are not enough and Donald Tusk warned the UK ‘frictionless trade’ will be impossible after Brexit unless it remains in a customs union with the EU. Theresa May was saying there cannot be an open border in Northern Ireland.
USD/JPY was better bid throughout the European session hunting down a key fibo resistance on the 107 handle. There was a follow through to 107.20 where Japanese exporter sell orders are placed, capping the move despite the risk-on sentiment fueled by the ISM beat and inline PCE readings underpinning the ‘Powell trade’. The dollar was volatile, as was the VIX that read as high as 25 at one stage with stocks in a chop. Then came the Trump headlines and the yen picked up the safe haven bid as stocks, yields and the dollar crashed.
As for the antipodeans, it was a choppy day for higher beta trades. AUD/USD was under pressure from the big miss in CAPEX data overnight with the price extending the downside in European trade for a new low of 0.7712, below the post-Asia CAPEX low of 0.7717. The pair opened in NY at 0.7725 and was pressured on the ISM beat before risk reversed and Powell made dovish remarks over jobs and wages. AUD/JPY lifted and the Aussie caguth a bid to 0.7765. Trump’s protectionist orders on tariffs could be signed off as soon as next week and this sends stocks off a cliff – risk was turning upside down . AUD/USD fell to 0.7715 with a return ticket back to 0.7769 for the close. The Kiwi, however, outperformed and was bouncing off 0.7186 to 0.7250 supported by strong terms of trade data.
Key notes from US session:
- Trump’s protectionist-tariff announcements send markets into a sea of RED
- Italian elections: ‘Que sera, sera…’ – Westpac
- US equities plunged for a third consecutive day
Key events coming up:
Analysts at Westpac offered the day’s key events coming up:
“Australia’s calendar is empty ahead of a very busy week which includes the RBA meeting, Q4 GDP and Jan retail sales.
The global calendar seems unlikely to have much impact on markets. Thailand Feb CPI and South Korea industrial production reports are due, along with Feb manufacturing sentiment surveys for South Korea and Singapore.
UK PM May is due to speak – again – on Brexit. Canada releases GDP for the month of Dec, expected to be up 0.1% m/m, 3.3%yr. The US data calendar is limited to final Feb consumer sentiment (University of Michigan).
The Italian general election is held on Sunday. Polling suggests a hung parliament but there are a large number of undecided voters. Based on decided voters, a centre-right coalition – including Silvio Berlusconi’s Forza Italia – is likely to form government and succeed the centre-left coalition.
In Germany, the result of the SPD membership vote on a coalition with CDU is released March 4-5. A poll on Wednesday suggested a return of the grand coalition has a 56% majority but the sample may be broader than that of the actual voters.”