Market movers today
Focus will continue be on the escalation in the US-China trade conflict and notably on the Chinese response to the new tariffs announced by the Trump administration overnight; more on this below.
NATO will start i ts two-day meeting today. While normally not a market mover, US President Trump has been calling for increased contributions from other NATO members. Any disagreement or potential change in the structure/ dynamics of NATO should fuel a risk-off environment . Also, UK political developments are likely to stay in focus.
The Bank of Canada is widely expected to hike the overnight rate target by 25bp to 1.50% at its meeting today. Canadian data has been strong lately while the BoC has kept its tightening cycle on hold since January.
Sweden’s Prospera inflation expectations survey of money-market players is due.
Selected market news
A significant negative shift in sentiment as the US administration announced it is planning to levy a tariff of 10% on another USD200bn worth of goods imported from China. Goods targeted include clothing and technology products but not e.g. mobile phones. The move comes after the US last Friday implemented a 25% tariff on the first USD34bn amount of Chinese goods and threatened to up the amount targeted to USD500bn. Should tariffs on this additional USD200bn come into effect , import levies would hit close to half of China’s exports to the US as of 2017. China has vowed to retaliate to US measures onefor- one; a Chinese official said that the US is escalating the trade dispute but no specific retaliation measures were announced overnight . Equities were mixed to positive in the US but the Asian session showed marked losses with Chinese indices down close to 2%.
Following the recent frenzy in UK politics, speculation has been mounting that Maysceptic Tories may gather to call for a vote of confidence in her leadership but a majority seems to be lacking. Meanwhile, the EU’s Brexit negotiator Michael Barnier questioned May’s Brexit plan yesterday, but the latter was partially endorsed by Germany’s Merkel who called it a ‘solid step forward’. Crucially , however, in order to pass legislation, May remains dependent on a united Tory party or on Labour support .
In FX markets, the latest JPY weakness came to a halt as the trade issue resurfaced whereas EUR/USD was little affected. NOK shrugged off the gains as markets realised yesterday’s headline inflation surprise is of little importance to Norges Bank. Oil prices have continued to move higher, with Brent closing in on the USD80/bbl mark on tight market fear out ages due to the strike at Norway’s Knarr field. Scandies now await tomorrow’s key Swedish inflation release, which we doubt will surprise the Riksbank on the upside.
In fixed income, US yields rose initially but fell sharply after the tariff announcements, with the 10Y yield now around 2.84%. In Europe, the spread tightening between the periphery and core markets continued yesterday, but at a modest pace; core EU government bond yields are very range bound with 10Y Germany still trading around the 0.30% mark.
