Market Info

Trump tariffs allow exemptions for Canada and Mexico. EUR lower after ECB, GBP awaits data on industrial production. US employment numbers out this afternoon.

09/03/2018 | OzForex



Data Releases:

We expect a range today in the AUD/USD rate of ? to ?. It’s now more than 24 hours since GBP/USD was last on a 1.39 ‘big figure’ whilst both in New York yesterday evening and in Asia overnight, it has actually traded on 1.37. In part this reflects a more general improvement in the US Dollar after President Trump granted some exemptions to his proposed tariffs but it also reflects GBP-specific weakness. The pound is this morning lower against every one of the major currencies we follow closely here ahead of a batch of UK economic data to be released today.

According to the Financial Times this morning, Brexit impact assessments published by the Exiting the EU Committee on Thursday show that the government’s policy of allowing regulatory divergence with the EU is estimated to cost the economy the most. It says that, “The document gives a detailed account of the cross government new economic model, which shows that in a classic Free Trade agreement with the EU27, the total hit to the economy would be 5 per cent less growth than otherwise after 15 years.” The other main conclusion, not already in the public domain, is that the public finance costs of Brexit are now thought to be more onerous than previous Treasury modelling suggested, with a net cost of 3 per cent of national income from an FTA agreement.

At the end of a week which has been pretty light in terms of incoming economic news, today brings the overseas trade numbers and the manufacturing and industrial production data. Surveys such as the PMI have been consistent with continued expansion in factory output and consensus looks for a modest +0.2% m/m gain after +0.3% in December. There was a big fall in total production last time due to the closure of an oil supply pipeline, but this fall is expected to be fully reversed with a 1.2% m/m gain. The trade data come after the December numbers showed a deficit in goods of £13.6bn; the highest since September 2016. They highlight the importance to the UK economy of securing the best possible transitional deal for the post-Brexit world, not least because the UK runs a surplus on the exports of services of around £3bn per month. The US Dollar rose sharply on Thursday. This was due to a big reversal in the EUR after the ECB Council Meeting and a softening of the President’s position on trade tariffs with exemptions already announced and more potentially still to come. The USD index against a basket of major currencies rose from 89.10 at lunchtime in Europe to a best level of 89.90 overnight; fully reversing the losses which had been seen earlier this week.

President Trump last night signed a proclamation to impose steep tariffs on imported steel and aluminium. The protectionist policies were needed to stop America’s trading partners from “stealing our wealth”, he said. Surrounded by steel and aluminium workers and key staff, Trump said he had to act to stop the “decimation of entire communities” and insisted there would be a very fair process as the administration used the next 15 days to negotiate exemptions with allies. Canada and Mexico will be exempted. More than 100 Republican House members signed a letter on Wednesday expressing “deep concern” about the plan. They pressed Trump to change course and “avoid unintended negative consequences to the US economy and its workers”. They added that “tariffs are taxes that make US businesses less competitive and US consumers poorer.”

Today brings the monthly US labour market report; delayed by a week from its usual ‘first Friday’ slot. It was the big jump in hourly average earnings a month ago which triggered the stock market rout with a 666-point drop for the DJIA on the day the numbers were released. For the February data, consensus is for non-farm payrolls to have risen 210-220k with the unemployment rate at 4.0% and a slight fall in average earnings from 2.9% to 2.8% y/y. The US Dollar index opens in Europe this morning around 89.75.