Summary:

  • US President Donald Trump pushed forward with his tariff plan on Thursday
  • Bank of Japan keeps rates unchanged, real wage growth data disappoints
  • Chinese inflation shot up in February, North Korea announces his denuclearisation plan 

In defiance of US allies Donald Trump decided to sign a tariff bill on Thursday imposing a 25% tariff on imports of steel, and a 10% levy on aluminium. During his speech he underlined that the levies are necessary for national security and to stop the “assault on our country” stressing that “without steel you don’t have a country”. In line with previous expectations Canada and Mexico will be temporarily exempt from tariffs, the move which is designed to make a favourable NAFTA agreement easier to obtain. Trump told the tariffs will go into effect in 15 to 30 days. The knee-jerk move on the decision was conducive to the Canadian dollar as well as the Mexican peso while the greenback kept rising and the US 10Y yield did not move too much. After the Trump’s announcement French Finance Minister responded that France along with the EU will assess consequences and agree an appropriate response.

link do file download linkThe EURUSD erased all its post-ECB announcement gains ending the day with a huge bearish candlestick. Thus, even as the long-term upward trend does not seem to be endangered, bears would take a stab at going toward 1.2150 before resuming gains. Keep in mind that a lot may depend on today’s employment report from the US. Source: xStation5

Looking beyond US trade policy it needs to mention the Bank of Japan decision which saw all rates unchanged as widely expected. The Bank kept its target for the 10Y yield around 0% while keeping the yield control mechanism was voted 8-1 in favour of it. The sole dissenter was Kataoka arguing the BoJ should clarify it will ease further if domestic factors delay reaching the price target. On top of that there were two macroeconomic readings. The first one concerned household spending for January which increased 2% yoy beating the consensus placed at -1% yoy. On the flip side real wage growth for the same period of time shrank 0.9% yoy vs. a 0.7% dip anticipated. It underlines that despite the rosy domestic economic outlook Japanese enterprises have been reluctant to lift wages, and therefore one may expect the BoJ will stay in place for the time being. 

Either way, the Japanese yen is the weakest currency in the G10 in early trading which, however, does not stem from the above-mentioned events. It’s a response to a North Korea declaration saying the country will suspend missile tests. According to the South Korean National Security Advisor Kim Jong-un understand that the routine US/South Korean military exercises must continue and he reportedly expressed his eagerness to meet with Donald Trump as soon as possible.

link do file download linkThe USDJPY breaks higher in the wake of the North Korea announcement. The pair could continue climbing even toward 103.30 if the US dollar keeps its momentum at a broad market. Source: xStation5

Finally let’s add that Chinese inflation (CPI) for February easily beat forecasts coming in at 2.9% yoy while the consensus had indicated a 2.5% increase. However, as it was the case in trade numbers earlier this week today’s report was distorted by the Lunar New Year as well, hence there is the likelihood price growth to come off its highs this month.

link do file download linkChinese inflation jumped in February being driven by increased demand due to the Lunar New Year. Source. Macrobond, XTB Research