Summary:
- US announce metal tariffs on EU, Canada and Mexico
- CAD drops lower on tariffs and GDP miss
- Oil falters despite DOE draw
- Euro area inflation jumps sharply higher
- US PCE rises more than forecast
This afternoon Commerce Secretary Wilbur Ross has announced that the US will begin levying tariffs on both steel and aluminium from the EU, Canada and Mexico as soon as tomorrow. The 3 trading partners had received exemptions from the tax when it was first proposed, but after negotiations with these countries failed to yield any acceptable progress as far as Washington is concerned they have allowed the exemptions to expire. This has caused some weakness in CAD and MXN while some of the Euro’s earlier gains have been handed back.
There’s been a pretty sizable pullback in the Canadian dollar today with both the tariff story and the latest GDP figures which missed forecasts weighing on the Loonie. The first quarter GDP print from Canada in annualised terms came in at a disappointing 1.3% vs 1.8% expected. Looking at the break down and individual components a deceleration in household spending, lower exports of non-energy products and a decline in household investment appear to be the chief culprits behind the slowdown.
The latest weekly inventory data from the US has shown a large drawdown in the headline DOE figure but despite this the price of Oil has dropped sharply since the release. Looking more closely at the data itself the the drop of -3.6M seems on the face of it to be fairly supportive of price, marking a sharp decrease on the +5.8M seen last time and also below both the consensus forecast (-0.4M) and last night’s API (+1.0M).
The EURUSD had earlier moved above the 1.17 level as the latest inflation figures form the bloc rose sharply, with the Y/Y reading rising to its highest level since last April. The flash CPI estimate came in at 1.9% vs 1.6% expected, marking a fairly drastic increase on the 1.2% seen previously.
Inflation has been an important theme today, with the Euro area CPI flash estimate beating forecasts and we’ve just had some more higher than expected figures from the US. In M/M terms the PCE core index for April came in at 0.2% – inline with the prior reading and above the 0.1% expected. This is a small positive beat and sees the core Y/Y reading remaining at 1.8% as was expected.