Market movers today
Focus remains on US trade policy and Italian politics while the market awaits the ECB meeting tomorrow and the US employment report on Friday. Today, US ADP employment for February is up for release. It is expected to rise 200k after an increase of 234k in January. However, it is not a very good indicator for the non-farm payrolls. Also, the most watched component of the employment report on Friday will be wage growth after the upward surprise last month.
US trade balance is also due out today. In December, the trade deficit increased to the highest level in nine years adding insult to injury to the issue of US trade imbalances. We have dived in to US trade policy, what Trump’s focus on protectionism me an s for the economy and markets and what to expect from here in this piece released this morning: Research US: Symbolic protectionism with limited impact on growth and inflation but risks.
At the Bank of Canada meeting today, rates are expected to stay unchanged at 1.25%.
The Swedish Debt Office is releasing the budget balance for February, see next page.
Selected market news
Markets continue to focus on US trade policy after Trump’s e conomic advisor, Gary Cohn, announced late last night that he has resigned. The reason is the ongoing discussions on trade policy where he strongly disagrees with Trump, as he sees the proposed tariffs as being unfriendly to business. Gary Cohn ‘s resignation means it is more likely that we will see a formal decision to impose tariffs on steel and aluminium next week.
In addition, Bloomberg wrote a story that the next step for the Trump administration is targeting China by imposing tariffs on Chinese imports and limiting Chinese investments in US businesses. It is not a surprise Trump wants to target China, as the US runs the largest trade deficit with China and the investigat ion of Chinese theft of intellectual property rights have been ongoing since August 2017. St ill, it is noteworthy that the story is being more concrete than what we have seen before. For instance, in the most severe scenario, the US could impose tariffs on imports of Chinese-produced clothing and electronics, according to the story. On the investment side, the US may prohibit Chinese takeovers in sectors, where US companies cannot access the Chinese market . The investigation on China is expected in the coming weeks. As with tariffs on steel and aluminium, we expect any measures taken against China to be small in magnitude, meaning this is more about politics than economics. There is a risk we are being too optimistic and that we are heading for a full -blown global trade war.
More protectionist US is bad for global risk sentiment and the Asian markets are flashing red. The bad mood came after a positive day for risk yesterday with the stories that North Korea is willing to discuss disarmament and that the Republican establishment is pushing back on the protectionist agenda. S&P500 futures are trading 1.1% lower and yields on US 10-year Treasuries have fallen 4bp. More interestingly, we have also seen a small weakening of the USD and EUR/USD is now trading at 1.2420.