Protectionism and Trade War a step closer.
When observers told us of the threat of war when Trump took over as President, most of us were expecting a conflict with North Korea rather than the battleground being steel and aluminium imports into the U.S. with an overspill into EU manufactured cars.
Gary Cohn a senior White House Economic Advisor, former Wall Street Banker and part-architect of Trump tax agenda resigned yesterday over the threat of the introduction of tariffs and a possible trade war with some of America’s biggest partners.
What started as a relatively localized ploy to get Canada and Mexico to discuss changes in the NAFTA agreement has taken a life of its own and threatens to drive the dollar to new lows, which presumably is a highly desirable side effect of the policy. The dollar index is languishing close to its lows with a test of 89.20 a possibility which puts in touching distance of its multi-year low at 88.50.
The release of employment data for February may divert the market’s attention briefly. The headline number is expected to be close to +200k although with it being such a lottery it is hard to do anything other than guess. The main event will however be the growth in wage increases. Last month’s 2.9% is unlikely to be eclipsed but a similar read will give some impetus to the suffering dollar.
ECB to bare its teeth?
There has been speculation of some time that the ECB has been about to, or considering, or contemplating a change in monetary policy and every time a meeting is on the horizon, cold water has been poured on the theory. The two-day meeting with begins today is receiving a similar build up with the change in the bias of monetary policy from easing to neutral a possibility.
Last week’s fall in the Euro to test strong support at 1.2160 provided the Central Bank with an opportunity to allow discussion of a change in bias since the common currency will rally quite strongly should a change be announced. A test of 1.2520 is now highly probable with a new range to be set in place for Q2.
A rally for the Euro would do President Trump’s job for him, making U.S. import of EU built cars and truck prohibitively expensive and remove the need for a tariff. The interconnection of the globalized world is in a constant state of flux with first one then another currency having a strong set of drivers.
One day we will have a single global currency and all these issues will be nothing but distant memories. Or maybe not!
Sterling escapes again.
We all know that Brexit is the only game in town as a driver for Sterling. It is remarkable that when there is no Brexit story to provide impetus, the pound drifts into a kind of benign state drifting on the flow of news affecting other currencies.
It also seems that once Brexit headlines fade traders tend to await the next instalment rather than reacting to the one that has just taken place. It is odd that there is any support for the pound other than an oblique possibility of higher interest rates in the UK, but it continues to defy gravity.
It is rumoured that there are very large sell orders ranged against the pound starting at 1.3940 and reaching above 1.4000 which seems to be the limit of the market’s tolerance for a stronger pound.
It is hardly surprising that the pound should be under pressure given the, frankly, abysmal performance of the Government over Brexit which seems to become more reactive and less assertive every week that passes. To allow the opposition with a blatant electioneering set of policies to gain an advantage betrays a weak, ineffective Prime Minister and Cabinet that have thrown away a Parliamentary majority, an opportunity to produce a salient and cohesive Brexit and a chance to unite the country