Wall Street tries to assess the trajectory of trade wars: The S&P 500 was on track to close its worst loss since February 8 with a 1.4 percent drop while the Dow was pacing for a 1.7 percent slide that looked to earn a similar historical milestone. It is worth noting that a considerable portion of the day-over-day loss was registered in the opening gap down. Excluding the February 6th opening gap, Thursday’s opening dive was the largest in 7 years for the S&P 500. The concern was the impending opening shot of trade wars that were to be made by the US. Through session’s close, the opening sortie broadly met expectations with some anticipated relief from the most threatening areas of operation (avoiding a direct US-EU conflict). Yet, investors have yet to fall back into their complacent buy-the-dip habit. The fundamental outlook still looks worryingly cloudy for growth and financial stability, which poses an even greater risk for those bidding up record highs compared to the hay-day of the status quo. Whether the Dow ultimately holds its breaks 24,200 – a trendline back to November 2016 (the pre-election low) will say a lot about our next phase.
EU earns exemption from US tariffs, China earns additional: The trade wars have officially started. The question moving forward is how far and quickly they will escalate. On the encouraging side of this constant concern for the past few months is that a range of exemptions was reported for the United States’ blanket steel and aluminium tariffs. Most notable on the list was the European Union. Had the US imposed its tax on the world’s largest collective economy, there were already plans on both sides for further escalation that would have rippled throughout the global markets. Yet, where Europe sighed a breath of relief, China felt the burden of its long-standing trade surplus with the US. President Trump announced steps to imposing a $60 billion tariff on China and limiting the country’s ability to invest in the United States technology sector. In the upcoming session, the 15-day grace period granted for the metals tariffs is due to end. It is highly likely that China will feel the pinch from this tax as well – as will likely many other smaller countries who have little leverage to negotiate for a favour. As we look forward, how aggressively these countries respond to their counterparts’ actions will determine how quickly this situation will weigh on the globe.
Pound gains as BOE sets stage for rate hike: The Bank of England kept the benchmark cash rate unchanged as widely expected at Thursday’s policy meeting. Minutes from the sit-down of MPC committee revealed a vote tally of 7-2 in favour of the status quo, however with the absence of unanimity seemingly reinforcing bets that an increase is slated for May. The markets are pricing in the probability of such an outcome at 72 percent, up from 65.2 percent before the announcement. Policymakers reinforced hawkish speculation, saying wage growth “will rise further in response to the tightening labour market” and projecting that overall inflation will hold above the 2 percent target despite some near-term weakening.
The EU summit and Brexit concerns: The EU will hold the second day of its summit Friday, and leaders are no doubt a little heartened that they will not have to prepare a harsh rebuke and official steps of retaliation against the US with the discharge from US tariffs. Yet, that was not the only critical point on the agenda. Normal concerns over the growth and the path towards greater integration will be bolstered by the state of the Italian politics and the response to Russia for what is considered a state-sanctioned poisoning of a former spy that was living in the UK. The most pointed threat to market volatility, however, is the expected discussion on the proceedings of the Brexit negotiations. The Sterling is somewhat richly valued after months of advance considering the lack of genuine agreement for the path forward. Rarely is simply buying more time worth so much market progress.
Australian shares oscillate on Fed vs RBA outlook: Australia’s benchmark S&P/ASX 200 stock index edged modestly lower on Thursday, erasing the prior day’s equally restrained gains but making little substantive progress to the downside. Gains in energy and materials names offset weakness elsewhere as commodities found strength in post-FOMC US Dollar weakness. Shares pushed to the lows of the day early in the session – perhaps inspired by the Fed’s upgrade of rate hike prospects in 2019-20 – but fading fears of local tightening following soft labour-market data provided relief.
Fed-inspired commodities rally stalls: Raw materials prices pulled back following Wednesday’s Fed-linked rally. The US central bank raised rates and signalled a broader hawkish policy pivot but sounded more reserved than market participants anticipated, sending the US Dollar lower. That offered de-facto support for commodities, most of which are denominated in terms of the greenback on global markets. The benchmark currency promptly regained its footing as risk aversion struck global exchanges, however capping the advance. Gold remains locked in a narrow range above $1300/oz while crude oil has snapped a six-day winning streak, stopping short of testing the 2018 high just below $67/bbl.
Australian shares oscillate on Fed vs RBA outlook: Australia’s benchmark S&P/ASX 200 stock index edged modestly lower on Thursday, erasing the prior day’s equally restrained gains but making little substantive progress to the downside. Gains in energy and materials names offset weakness elsewhere as commodities found strength in post-FOMC US Dollar weakness. Shares pushed to the lows of the day early in the session – perhaps inspired by the Fed’s upgrade of rate hike prospects in 2019-20 – but fading fears of local tightening following soft labour-market data provided relief.
Market Data:
SPI futures moved 13.89 or 0.23% to 5950.27.
SPI futures moved -13.12 or -0.22% to 5937.15.
AUD/USD moved -0.0065 or -0.84% to 0.77.
On Wallstreet: Dow Jones -1.55%, S&P 500 -1.34%, Nasdaq -1.47%.
In New York: BHP -4.02%, Rio -4.56%.
In Europe: Stoxx 50 -2.19%, FTSE 100 -1.64%, CAC 40 -2.07%, DAX 30 -2.28%.
Spot Gold moved -0.43% to US$1326.48 an ounce.
Brent Crude moved -0.58% to US$69.07 a barrel.
US Crude Oil moved -0.97% to US$64.54 a barrel.
Iron Ore moved -3.96% to CNY449 a tonne, SGX Iron Ore moved 0.54% to US$70.87 a tonne.
LME Aluminum moved 0.24% to US$2081 a tonne.
LME Copper moved 0.56% to US$6793 a tonne.
Written by: John Kicklighter, Chief Strategist and Ilya Spivak, Market Strategist, DailyFX
