Risk-off as trade tariffs loom

4 minute read


The dollar itself did not really become involved in the Tuesday's risk-off move but it was surely at the heart of the matter. Hawkish words about trade from the administration led investors to suspect that the president was genuinely ready to go ahead with his 25% tariff increases on Chinese goods before the end of the week. Equity and bond prices both retreated, with >90% of S&P500 shares having a losing day.

JP Morgan chief Jamie Dimon showed some faith in the White House tactics. He expressed 80% confidence that the US administration would be able to do a trade deal. "It may take a little more time" but "I'd rather not do a deal than do a bad deal". The last person who openly preferred no deal to a bad deal was UK Prime Minister Theresa May.


The European Commission's Economic Forecast for spring 2019 notes "weakness in manufacturing". It anticipates growth varying from "robust" in Ireland through to "lower" in Sweden". Sweden proved the point by reporting falls for manufacturing orders and industrial production.  

This morning Germany did its best to back up the EC's forecast of "moderate growth" when it announced another month of industrial production growth; 0.5% in March after 0.7% in February. Production was still lower on the year but the numbers were considerably better than analysts had predicted. The EUR is unchanged on the day.


Canada's Ivey purchasing managers' index told a positive enough story. At 55.9 it was three points ahead of forecast and more than a point and a half higher on the month. It was only of temporary help to the CAD though. A downward tilt to oil prices worked against the Loonie, as did the trade war story.

The price of WTI crude did not fall far and nor did the CAD. It is 0.2% lower on the day against the USD.


The Brexit riskometer pointed more towards procrastination than peril as Westminster politicians prepared themselves for the parliamentary debate to recommence. Prime Minister Theresa May had a meeting with the chairman of the backbench Conservative 1922 Committee, who could determine her political fate. Labour leader Jeremy Corbyn offered little reassurance that he will reach a compromise deal with the government. Downing Street said it was inevitable that Britain would have to take part in the European elections in two weeks' time.

The background Brexit noise did sterling no favours. Nor was it helped much by a good statistic from the British Retail Consortium, which showed sales rising 3.7% in April. The figure was distorted by Easter activity, which shifted from March in 2018 to April this year. Sterling is 0.4% lower on the day and looking vulnerable if the Brexit mood darkens.


The Japanese statisticians are warming up slowly after their ten-day break.  The figures released overnight covered money supply and the services sector PMI, which was a touch lower on the month at 51.8. Minutes of the Bank of Japan's policy meeting in March told investors little they did not already know.

Investors did not need any input from minutes or statistics to know which way to take the JPY. The trade war sabers were rattling and that was enough for them. As they took the S&P500 lower the USD/JPY went down with it. The JPY is 0.4% ahead on the day and the top performer among the major currencies.

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