Global trade policy formally shifted towards protectionism as the markets are shaken once again

Mar 28 • Morning Roll Call • 1358 Views • Comments Off on Global trade policy formally shifted towards protectionism as the markets are shaken once again

With the new tariffs and fears of a trade war, after Trump allegedly intends to impose 25% import duty on 60bn worth of imports from China, markets are being shaken again after a short recess. Given how Trump has internalized the development in S&P500 during his presidential reign, we still judge that his appetite for further tariffs will be modest given how the markets react to the tariffs. While the potential trade war is on everyone’s lips, the softening of the global macro momentum has kind of sneaked under the radar. The economic surprise index for the major economies continues to drop – which usually spills over to better relative bond performance versus equities. So, would the equity market have sold off even without Trumps tariffs? We tend to think so.

The Trump administration’s decision to impose tariffs on US steel and aluminium imports and a $50-$60bn tariff package on imported goods from China – means that global trade policy has formally shifted into the realms of a protectionist world. If countries that are hit do not retaliate to these initial US protectionist measures, the world is ‘only’ facing a one-sided contained trade attack – and not a trade war in our view. In this case, the economic effects are limited – with the Chinese economy hit the most (we estimate a cumulative 0.6% GDP loss over two years). If US imports from China, as well as steel and aluminium imports from a range of countries, are partly substituted by domestic production – the research team at ING estimates that this could lead to a 0.3% increase in US GDP after two years.

Going forward, the immediate risk is whether trade partners seek to retaliate in equal and proportional measures – giving rise to some sort of ‘Tit-for-Tat’ Trade Battle. While reports suggest US and Chinese officials may initially be looking to take a more diplomatic approach, the reality of unsuccessful and challenging trade negotiations means the prospect of significant countervailing measures being imposed by Beijing – beyond the trivial $3bn retaliatory tariffs on imported goods from the US already announced – is fairly high.
Today we are expecting MBA mortgage applications from the US, followed by the advanced trade in goods deficit, seen narrowing to -$73.6 bln from -$75.3 bln. The third report on Q4 GDP may rise to 2.8% vs 2.5% on Wednesday, along with NAR pending home sales and EIA energy inventories. In addition, January average weekly earnings from Canada are expected to rise 0.2% (m/m, sa) after the identical 0.2% gain in December. From the UK, the monthly Nationwide house price indicator and the latest CBI distributive trades survey, where CBI retail survey is expected to show a realized sales headline of 7 in March, after 8 in the month before. -FXStreet


The EUR/USD pair fell from 1.2476 to 1.2372 on Tuesday after the ECB officials stressed the need to be patient in removing stimulus and the Eurozone confidence numbers missed estimates. As for the EUR/USD pair bias, the short-term picture favors additional gains ahead, and the daily decline seems just corrective, as the pair bounced from around a bullish 20 SMA, while technical indicators pared their declines above their mid-lines, and are aiming to resume their advances. The 1.2480 region is still a major static resistance that needs to be broken to talk about a bullish continuation, while bears will become more courageous only with a daily close below the 1.2300 figures.


The GBP/USD pair is threading higher ahead of the European session, testing around the 1.4190 area and looking for more. The Sterling declined heavily in Tuesday’s decidedly risk-off market stance.


The USD/JPY pair is solidly bid around 105.60 as North Korea risks continue to fade and the S&P 500 futures indicate the stocks will likely regain poise today. Technically, the 4 hours chart shows that the pair’s rally stalled below a now horizontal 100 SMA, offering a moderate resistance at around 106.00.


Gold created a bearish outside day candle on Tuesday, signaling the rally from the March 20 low of $1,307 may have run out of steam. The metal dropped to $1,330 yesterday as the dollar index (DXY) rose to 89.25.

NZD ANZ Business Confidence
CHF Credit Suisse Economic Expectations
GBP CBI Realized Sales
USD Final GDP q/q
USD Good Trade Balance
USD Pending Home Sales
USD Crude Oil Inventories
USD FOMC Member Bostic Speaks


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