Trade war adventures

4 minute read


The latest - vicarious - ratchet up in the US president's trade war with China came at the weekend when Google said it would restrict Huawei's access to key components of the Android GSM framework, such as maps and Gmail. The announcement came as electronics suppliers in Europe and the States cut supplies to the Chinese company. The OECD described the trade war as "a danger to growth".

That danger was not felt by US consumers, at least according to the University of Michigan. Its index of sentiment for May was five points higher on the month at a provisional 102.4. There were no other US economic data on Friday but that was no problem to the USD. It was among the major-currency leaders on the day.


Austria is the latest country to face the challenge of reconciling centrist governments with far-right populists. Nationalist vice-chancellor Heinz-Christian Strache was forced to resign after he was shown in a video offering political favors in return for election contributions.  Chancellor Sebastian Kurz has in turn been forced to call a general election. Although Austria's economy ranks only seventh  in the euro zone - less than 3% of total Euroland GDP - the episode is another unwelcome complication as the European elections draw near.

Investors could not get worked up about Fridays mostly on-target inflation numbers and they showed no greater interest in this morning's current account data for pan-Euroland. The EUR is 0.2% lower on the day against the USD.


There was nothing for CAD-followers to chase among Friday's economic data. Nor was there any help from almost-unchanged oil prices. However, the Loonie did receive assistance from news that Washington is about to remove  protective tariffs on steel and aluminum from Canada and Mexico. 

The CAD is 0.3% ahead on the day. It is unchanged on the week and up by 0.4% from a month ago.


The Rightmove index of real estate asking prices was not awful, with monthly and annual rises of  0.9% and 0.1%. However, with the market in its current mood, investors need no fresh provocation to mark down the GBP. They did so for a fifth consecutive day on Friday, leaving it 0.3% lower against the USD. It is down by 2.0% from a month ago, not because of any particularly savage daily treatment but as the result of death by a thousand cuts.

Investors struggle to see any upside for sterling as long as the Brexit impasse continues. A mood of indecision permeates not just parliament but the economy at large. People and businesses find it impossible to make firm plans when can do more than guess what relationship the country will have with the outside world in the future. Absent an eventual  no-deal Brexit, which is still not the most likely outcome, the GBP could be expected to make a recovery once Britain's political future has been mapped out.  But it isn't on the radar yet.


The yen demonstrated again this morning its almost total insensitivity to Japanese economic data. Figures for first quarter gross domestic product  showed it expanding by a provisional annualized 2.1%, a far cry from the predicted 0.2% shrinkage. Yet the JPY did not even crack a smile: for the next hour and a half it continued to retreat. By the time it was revealed that industrial production had fallen by 0.6% on the month and 4.3% on the year, the JPY was making headway and it was not put off its stride.

The yen is down by 0.4% from Friday morning. Its decline has nothing whatsoever to do with the macroeconomic data. It could well be related to the softening of trade tensions in North America but, if so, there is no correlation with that other safe-haven, the CHF.

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