Trump Fires First Shot Across the Bow in Trade

Daily Analysis - 30/04/2017

Accelerated NAFTA Renegotiation Efforts Coincide with Rhetoric Towards Canada and South Korea

trump-fires


In a sign of additional follow through on campaign promises, the Commerce Department added tariffs to Canadian exports of softwood lumber, angering the US’ northern neighbor and sparking concerns about future actions.  In addition, Trump unveiled his ambitious tax plans for both personal and corporate taxes, but both remain absent critical details related to actual implementation.

Last Week


Geopolitical concerns continued to play a role in financial markets last week as another North Korean failed missile launch set up the peninsula for a potential showdown.  Although haven assets initially fell throughout the week on the heels of the French election results, the safety plays picked up demand through the second half.  In the United States, housing data continued to show moderate improvements with new home sales climbing as prices rose by 5.90% year over year through February according to S&P Case-Shiller.  However, durable goods orders failed to meet consensus estimates while the advance reading of first quarter gross domestic product coming in at a disappointing 0.70% expansion compared to forecasts of 1.20%.

Shifting gears towards Europe, the European Central Bank left interest rates unchanged during the latest decision, choosing instead to adjust the language modestly by downplaying the risks to the outlook.  Helping matters was the pickup in Euro Area inflation on both a core and headline basis which is easing pressure on the ECB to accommodate policy further.  The Bank of Japan kept interest rates unchanged during its own decision while optimistically revising GDP forecasts higher despite inflation projections edging lower.  Finally, Australian consumer prices managed to rise back towards the RBA target band of 2.00-3.00% in a sign of improving economic momentum.

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The Week Ahead


The sessions ahead will be focused on manufacturing data, employment figures, and central bank decisions.  To start off the week, official purchasing managers’ indices from the United States and China will lead the way, with both expected to pullback modestly.  From there, manufacturing data shifts to mainland Europe and the United Kingdom.  The Euro Area aggregate figure combined with the French and German PMI numbers are forecast to remain unchanged in expansionary territory for the month of April, mirroring the developments in March.  On the other hand, Spain and Italy are forecast to see expansion accelerate while UK manufacturing momentum cools modestly.

Switching gears, most unemployment developments are expected to be largely positive, with the Euro Area jobless rate falling to 9.40% from 9.50%.  Meanwhile the number of unemployed individuals is expected to remain constant in New Zealand, Canada, and Germany while the US job creation slows, potentially driving unemployment to 4.60% from 4.50% in March.  From the monetary policy view, no major changes are anticipated with the Reserve Bank of Australia expected to maintain rates at a record low 1.50% despite a recent pickup in inflation.  The FOMC decision will dominate the headlines, with guidance towards further rate hikes despite no change anticipated for rates during the forthcoming announcement.

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