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Trump and Trade Tariffs to Dictate Direction for the Majors

Bob Mason
Trump hits the markets early with the threat of a hike in tariffs and the prospect of more. The latest tweets will distract the markets from the stats.

Earlier in the Day:

It was a relatively quiet day on the economic calendar. Key stats released during the Asian session were limited to April’s service sector PMI out of China.

Out of China,

The Caixin Service PMI rose from 54.4 to 54.5 in April, coming in ahead of a forecasted 54.3. According to the Markit survey,

  • The Business Activity Index hit its second-highest level since May 2012, the highest being in Jan-18.
  • A pickup in activity was driven by an increase in new business, albeit at a slower pace than in March.
  • The amount of new export work received increased at the most marked pace since the series began in late 2014.
  • The rate of depletion of backlogs was the slowest in the current year, in spite of a lack of pressure on operating capacity.
  • Operating expenses continued to increase, with the rate of input price inflation the steepest since Sept-18.
  • As a result, output prices rose at the quickest pace since Jun-18.
  • In spite of the pickup in business activity, sentiment slipped to its joint-lowest in 5-months.

The Aussie Dollar moved from $0.69752 to $0.69808 upon release of the figures. At the time of writing, the Aussie Dollar was down 0.61% to $0.6975.

Elsewhere,

At the time of writing, the Japanese Yen was up 0.53% to ¥110.51 against the U.S Dollar, while the Kiwi Dollar was down 0.60% to $0.6607.

In the equity markets, it was panic stations. The CSI300 and Hang Seng were the worst hit early on, down by 4.03% and by 2.47% respectively, at the time of writing.

While faring better than the pair, the ASX200 was also deep in the red, down by 1%.

News of Trump announcing that he will hike tariffs on $200bn worth of Chinese goods this week, from 10% to 25%. Trump added that he would be targeting an additional $325bn worth of goods with 25% tariffs soon after.

In response to Trump’s latest tweets, China has reportedly threatened to cancel trade talks that are set to resume on Wednesday.

The Day Ahead:

For the EUR,

It’s a relatively busy day ahead on the economic calendar. Spanish unemployment numbers and April service sector PMI numbers are due out through the morning.

While the PMI numbers are finalized figures for France, Germany, and the Eurozone, the focus will likely be on the Eurozone number. Numbers out of Italy and Spain will likely have a relatively muted impact, barring an unexpected jump in activity.

Alongside the Eurozone PMI, the Eurozone retail sales figures are also due out. Following disappointing numbers out of France and Germany, a larger than forecasted slide in sales would weigh on the EUR.

Outside the numbers, market apprehension ahead of a resumption of trade talks between the U.S and China could test risk appetite and the EUR. Trump’s latest tweets will certainly test the bulls later in the day…

At the time of writing, the EUR was down 0.08% to $1.1189.

For the Pound,

There are no material stats due out of the UK, with the UK markets closed for the day.

While it’s a quiet start to the week, economic data due out later in the week includes 1st quarter GDP numbers are forecasted to support BoE Governor Carney’s hawkish outlook on rates.

Brexit will continue to be the stumbling block for the Pound, however. News of the Labour Part being unwilling to back the Tories weighed on the Pound in the early part of the day.

At the time of writing, the Pound was down by 0.24% to $1.3142.

Across the Pond,

It’s a quiet day ahead on the economic calendar. There are no material stats due out of the U.S, which will leave the focus on FOMC member chatter through the day. Members Evans and Harker will deliver speeches later today.

After FED Chair Powell’s fence-sitting last week, FOMC member chatter in the coming weeks will give the markets a breakdown of the doves and the hawks and ultimately, a better sense of what’s to come.

Outside of the chatter, market risk sentiment will also play a hand. With the U.S – China trade talks resuming this week, there’s been plenty of hope hanging on an agreement being reached…

At the time of writing, the Dollar Spot Index was up 0.01% to 97.530.

For the Loonie,

There are no material stats due out of Canada.

While there are no stats, Bank of Canada Governor Poloz is due to speak later on in the day. Any chatter on policy will influence. There’s unlikely to be anything particularly hawkish to provide support for the Loonie, however.

As always, risk sentiment will continue to play a hand. An early pullback came off the back of Trump’s latest tweets and there could be more losses to come should China formally cancel talks…

The Loonie was down 0.42% at C$1.3476, against the U.S Dollar, at the time of writing.

This article was originally posted on FX Empire

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