Markets:
US President Trump surprised markets overnight just when trade dust seemed to have settled. He ordered his administration to consider tariffs on an additional $100 bn in Chinese imports, initially causing a new collapse in US stock market futures (-2%), an uptick in the US Note future and minor losses for the dollar. US equity futures retraced half of the initial spike lower ahead of the payrolls, while the Note future and the dollar retraced the complete move. The greenback tested first intermediate resistance levels (EUR/USD 1.2240, USD/JPY 107.29 and DXY 90.45). Payrolls disappointed (apart from wage data) and caused quite some volatility. Investors didn’t know which card to play, but got support from a hastily planned press conference by the Chinese Ministry of Finance. They reiterated readiness to strike back and contradicted US official talk that both parties entered a negotiation phase. The latter was probably determinant for sending US stocks, the US dollar and US rates lower. Tonight’s speech on the economic outlook by Fed chair Powell probably won’t be able to counter that move. On the contrary, mentioning the trade conflict now risks provoking and amplification of the current trades. US yields decline by 2.4 bps (2-yr) to 3.7 bps (10-yr) with the belly of the curve outperforming. German yields drop by 0.8 bps (2-yr) to 1.9 bps (10-yr). EUR/USD bounced back from the 1.2220 area to above 1.2270 and US stock markets opened more than 0.5% lower. EUR/GBP moved from 0.8745 to 0.8725 in uneventful, technically-inspired trading.
News Headlines:
The Chinese Ministry of Finance (Mofcom) called an unplanned press conference in the three-day national holiday to respond to US President Trump’s request to his administration for possible tariffs on $100 bn worth of imported Chinese goods. Spokesman Gao Feng condemned the move and said that China will immediately retaliate if the US releases a $100bn list. The Mofcom added that the US has been refusing to negotiate with China, contrary to what several high rank US officials indicated earlier this week. Investors will now look out for next week’s keynote speech by president Xi Jingping on Tuesday at the Boao forum (Chinese Davos).
US payrolls disappointed. The US economy added 103k jobs in March, way below 185k consensus. We’re talking about a 132k miss taking into account the cumulative 50k downward revision to the previous 2 months’ figures. The unemployment rate stabilized at a cycle low of 4.1% while consensus forecast a drop to 4%. The participation rate declined from 63% to 62.9%. Average hourly earnings for once turned out to be the bright spot of the report. They increased by a good 0.3% M/M and 2.7% Y/Y, which was in line with expectations. Canadian payrolls showed the opposite picture. March net job growth (+32.3k) beat expectations (+20.0k) and was mainly driven by a surge in full time employment (+68.3k). The unemployment rate stabilized at 5.8% as did earnings at 3.1% Y/Y (below 3.4% Y/Y consensus though). The loonie nevertheless profited with USD/CAD dropping from 1.2790 to 1.2740.
ECB Coeuré said that a trade war triggered by US tariffs would cause a global recession – and the mere fear of one is already hurting the economy. The ECB currently doesn’t take it into account in its deliberations. He added that discussions about adjusting the current mix of monetary policy instruments is under way as EMU inflation shows signs of improvement.
German industrial output fell by the most in more than two years in February (-1.6% M/M from 0.1% M/M vs 0.2% M/M consensus) and the sector is losing momentum, the Economy Ministry said, as factories in Europe’s largest economy throttle back in the face of the rising threat of protectionism.
