Risk aversion continues to be the main theme today as US President Donald Trump declared that trade wars are good. At the time of writing, German DAX is trading down -2.2%, French CAC down -1.9% and UK FTSE down -1.1%. That follows -2.5% decline in Japanese Nikkei. US futures are pointing to triple digit decline in DOW at open. In the currency markets, Dollar is suffering steep selling against Euro, Yen and Swiss Franc. Nonetheless, commodity currencies are even weaker with Canadian Dollar leading the way down.
Dollar suffers again as Trump said trade wars are good
Fresh selling is seen in Dollar after latest tweet by Trump. He said in early morning that "when a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win." This is a follow up to the news that Trump is going to impose tariffs of 25% on steel and 10% on aluminum. And he plans to announce that formally next week.
It should be noted again that accord to data of IHS Global Trade Atlas, in 2017, Canada was the top supplier of steel to the US, with 16% share. It’s followed by Brazil (13%), South Korea (10%), Mexico (9%), Russia (9%), Turkey (7%), Japan (5%), Taiwan (4%), Germany (3%) and India (2%). China is outside of top 10 at 11.
EU to react firmly against Trump’s trade war
Response from EU regarding the planned tariff was firm. In a statement, "President of the European Commission, Jean-Claude Juncker said: "We strongly regret this step, which appears to represent a blatant intervention to protect US domestic industry and not to be based on any national security justification." And, "We will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk." Juncker pledged "The EU will react firmly and commensurately to defend our interests. The Commission will bring forward in the next few days a proposal for WTO-compatible countermeasures against the US to rebalance the situation."
Data from European steel association Eurofer showed that Turkey was the bloc’s biggest steel customer in 2017, with 20% share. The US was just the second with 15% share. Also, that’s only around 2% of EU’s total steel production.
Canadian Foreign Minister Chrystia Freeland said the country buys more than half of American steel. And the results in a USD 2b surplus for the US. She criticized that it’s "entirely inappropriate" for the US to consider Canada a national security threat. Freeland pledged that "we will always stand up for Canadian workers and Canadian businesses." And she warned that "should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers."
In China, Foreign Ministry spokeswoman Hua Chunying sounded pedestrian. She warned that "in recent years, the global economy has still recovered slowly and the basis for the global recovery is is still unstable." And she urged all countries to "make concerted efforts to to cooperate to resolve the relevant issues, instead of taking trade restrictive measures unilaterally."
UK PM May to deliver Brexit speech at Mansion House
The markets are awaiting Prime Minister Theresa May’s high profile speech regarding post Brexit UK-EU relationship. The speech will take place at Mansion House in London at 1:30pm local time. Accord to the extracts by her office, May would seek "broadest and deepest possible agreement – covering more sectors and co-operating more fully than any Free Trade Agreement anywhere in the world today." And, "rather than having to bring two different systems closer together, the task will be to manage the relationship once we are two separate legal systems."
May is expected to set out five "tests" for the deal with EU. They are:
- That any deal must respect the referendum result
- That any deal must not break down
- That any deal must protect jobs and security
- That any deal must be "consistent with the kind of country we want to be" – modern, outward-looking and tolerant
- That any agreement must bring the country together
On the data front
Canada GDP grew 0.1% mom in December, in line with consensus. Eurozone PPI rose 0.4% mom, 1.5% yoy in January. German import price index rose 0.5% mom in January, retail sales dropped -0.7% mom. UK construction PMI rose to 51.4 in February. New Zealand building permits rose 0.2% mom in January. Japan unemployment rate dropped sharply to 2.4% in January, monetary base rose 9.4% yoy in February, Tokyo CPI rose to 0.9% yoy.
USD/JPY Mid-Day Outlook
Daily Pivots: (S1) 105.85; (P) 106.53; (R1) 106.90; More…
USD/JPY’s medium term decline from 118.65 resumed by breaking 105.54 and reaches as low as 105.24 so far. Intraday bias remains on the downside for 100% projection of 118.65 to 108.12 from 114.73 at 104.20 next. Firm break there will target 98.97 key support level. On the upside, above 106.37 minor resistance will turn bias neutral first. But outlook will remain bearish as long as 107.67 resistance holds.
In the bigger picture, current development argues that the corrective pattern from 118.65 is extending. The solid break of 61.8% retracement of 98.97 to 118.65 at 106.48 now suggests that the pattern from 125.85 high is possibly extending. Deeper fall could be seen through 98.97 key support (2016 low). This bearish case will now be favored as long as 110.47 resistance holds.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
|---|---|---|---|---|---|---|
| 21:45 | NZD | Building Permits M/M Jan | 0.20% | -9.60% | -9.50% | |
| 23:30 | JPY | Jobless Rate Jan | 2.40% | 2.80% | 2.80% | |
| 23:30 | JPY | Tokyo CPI Core Y/Y Feb | 0.90% | 0.80% | 0.70% | |
| 23:50 | JPY | Monetary Base Y/Y Feb | 9.40% | 9.20% | 9.70% | |
| 07:00 | EUR | German Retail Sales M/M Jan | -0.70% | 0.70% | -1.90% | -1.10% |
| 07:00 | EUR | German Import Price Index M/M Jan | 0.50% | 0.40% | 0.30% | |
| 09:30 | GBP | Construction PMI Feb | 51.4 | 50.5 | 50.2 | |
| 10:00 | EUR | Eurozone PPI M/M Jan | 0.40% | 0.40% | 0.20% | |
| 10:00 | EUR | Eurozone PPI Y/Y Jan | 1.50% | 1.60% | 2.20% | |
| 13:30 | CAD | GDP M/M Dec | 0.10% | 0.10% | 0.40% | |
| 15:00 | USD | U. of Mich. Sentiment Feb F | 99.5 | 99.9 |
