Markets:
- Global markets reacted to the implementation of tariffs by US President Donald Trump. That said, late in the session the Commerce Secretary Lutnick announced some relief could come tomorrow as Trump considers a path towards tariff relief. This saw markets reverse some of the overnight action.
- The USD depreciated sharply losing 1% as markets factored in risks to US growth as a result of the move. Th CAD however was little changed despite large moves during the day. Prospects of tariff relief helped strengthen the currency against the greenback later in the session. The euro posted another strong session following optimism around a 500bn infrastructure fund in Germany. The euro is now sitting at its highest against the USD since early November and continues to climb higher at time of writing. The AUD climbed higher as the RBA doubled down on its message that further rate cuts are not a certainty
- Equities markets were weaker across the board led by European markets. The Euro Stoxx 50 closed 2.8% lower while the German DAX was down 3.5%. Prospects of tariffs reaching Europe after Trump made good on his word accounted for the pessimism. For similar reason, the Nikkei was also down 1.2%. There was contagion in UK markets as well with the FTSE 100 down 1.3%. In the US, the S&P, Dow Jones and NASDAQ all closed lower. Following hints of tariff relief, US equity markets saw a small uptick before close suggesting the weakness could reverse. The ASX200 was down 0.6% yesterday with most of the fall occurring at its open. futures suggest it is poised for another weak open this morning.
- The US yield curve shifted up and steepened. The 10Y yield rose 9 basis points at time of writing (3bp came after Lutnick’s announcement) while the 2Y was up 4bps. The German bund showed little movement despite news of increase in spending, the 2Y bund yield was down 3bps while the 10Y remained as is.
- Gold prices rose 0.8% to $2916 as markets flocked to safe havens. Crude oil price fell – WTI was down 0.1% on the day to $68.31. Metals were mixed but remained close to recent ranges with copper down a modest 0.8% to $9,343 while aluminium rose 0.44% to $2,622. While the move lower in copper was modest, it is a fresh one month closing low emphasising that trade wars are having an impact on prices, though price moves are surprisingly restrained.
Overnight data and events:
President Trump followed through with his plan to raise import tariffs on Canada and Mexico to 25%. He also raised the tariff on imports coming from China to 20%, having lifted the levy by 10% a month ago. Each of these three countries comprise around 11-14% of US imports, and the move is set to take the average US import duty to around 11-12% from just over 2% last year. China responded by adding 10-15% tariffs on imports from the US mainly targeting agricultural production. Canada announced 25% tariffs on more than $20bn worth of US imports, which is going to be expanded to more than $100bn in three weeks. Meanwhile, Mexico is also going to impose retaliatory tariffs by the end of this week.
The euro area unemployment rate remained at the record low level of 6.2% for a fourth consecutive month. Among major member states, Spain and Italy reported decreases in their unemployment rates, to 10.4% and 6.3%. Meanwhile, joblessness remained stable in Germany and France, at 3.5% and 7.3% respectively.
Yesterday’s data recap:
In Australia, minutes from the RBA’s February meeting showed the call to cut rates was a close one. Member discussed the case for keeping rates steady or cutting. Support to keep rates as is came from a tight labour market with the members noting that “tightness in the labour market was not consistent with inflation being at the target.” At the same time, they also considered other indicators such as credit growth suggested policy may not be restrictive enough if rates were cut. Ultimately, the Board went with the decision to cut rates as inflation and wages had surprised to the downside and considered upside risks to inflation having abated. The minutes reaffirmed just how close the decision was stating that their scenario analysis showed that underlying inflation would undershoot the midpoint of the target range if rates remained as is for an ‘extended period’ a point the Deputy Governor made shortly after the statement was released. The Board reaffirmed that they would not commit to further cuts as they are not sufficiently confident of inflation’s return to target.
Ahead of today’s National Account release, we revised our expectations after partial results. Details are available here.
