The day has really been mostly about the stock markets, which have headed sharply lower after Donald Trump said that the US would impose import tariffs on of 25% on steel imports and 10% on aluminium, adding to fears of a tit-for-tat trade war on top of growing worries about higher interest rates. The DJI and S+P are closing at around -1.4%. Elsewhere the currency markets have been choppy for much of the session although the US$ is ending on soft note, enduring a sharp sell-off late in the day despite a whole slew of US data today suggesting that inflation is rising and that the Fed will be raising rates sooner rather than later. The metals have been heavy as has oil although both recovered sharply from session lows in the last hour of trade, in line with a minor bounce in the stock markets.
The tariff news overshadowed the Senate testimony of Federal Reserve Chairman Jerome Powell and comments from New York Fed President William Dudley on interest rates. In a question and answer session, Powell told the Senate Banking Committee on Thursday there was no evidence the U.S. economy is overheating, and labor markets may still have room to improve. Dudley, meanwhile, seemed comfortable with four rate hikes in 2018, but said those increases would occur at a gradual pace.
In terms of data, the personal consumption expenditure (PCE) price index rose 0.4%, the biggest increase since September and followed a 0.1% gain in December although the annual increase was unchanged at 1.7% in January. The weekly jobless claims saw the number of Americans filing for unemployment benefits fall to a 48-year low as the labor market tightens, declining by 10k to 210k, lower than expectation of 226k. The US ISM figures were also strong; Mfg PMI 60.8 vs exp 58.7, Prices Paid 74.2 vs exp 70.5). Earlier in the day, the EU PMIs were released and were generally solid, helping to underpin the Euro (UK February manufacturing PMI 55.2 vs 55.0 expected, EU Feb Mfg PMI 58.6 vs 58.5 exp, Germany Mfg PMI 60.6 vs 60.3 exp).
Friday is a bit thin for data although Cable could bounce around with speeches due both from UK PM, May and BOE Governor, Mark Carney. Before then, Asia kicks off with the NZ Building Permits while Australia gets the January New Home Sales and Japan has the January National/Tokyo CPI figures. The highlight in Europe will be a speech from the ECB’s Mersch, the German Retail Sales (Jan) and the EU PPI, while the US session will take guidance from the Michigan Consumer Sentiment Index and the ISM NY Index – Business Conditions. Note that the Italian election takes place over the weekend, causing a potential gap in the Euro on Monday.
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