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Trump tariff pause settles markets back to where they started...for now...

richard evans

Good morning

 

Quite day yesterday, USD pushing higher on the Trump tariff talk over the weekend, only to reverse much of the moves after Trump announced a one month pause in tariffs on Mexico and Canada.  It is almost as though yesterday never happened.  GBPUSD is now 1.2410, EURUSD 1.0310, USDCAD 1.4435, some 350 pips off yesterdays highs.  Quite where this leaves Mexico and Canada remains to be seen.  Mexico have agreed to boost border guards, and I think Canada have agreed more border work, but Canada are angry at the US action, with many calling for a complete boycott of US products.  This boycott could go as far as Musk’s US$100mn Starlink contract with Ontario. 4th March is the next tariffs deadline.

 

China have been hit with additional 10% tariffs and as yet I see no reprieve for them, although there is a suggestion talks with China could take place soon.  They have retaliated with 15% levies on US coal and LNG products.  Trump has even persuaded Panama to ditch China’s Belt and Road deal.  China markets have been closed for holidays, they will reopen tomorrow.  Meanwhile Australia say they are prepared for something of a trade war.

 

EU preparations for tariff retaliation are well under way.  A list of US products to be hit by tariffs is being drawn up and targets those products made in Republican-run states that are deemed vulnerable in 2026 midterm elections.  Whether this is enough to appease Trump remains to be seen.  The issue with EU/US is that it will be difficult to deliver what Trump wants.  Mexico and Canada can help with the border issues, but Trump wants EU to buy US cars.  Trouble is, no one really wants them over the BMWs, Audis and Mercedes that are available.  Not sure there is an easy fix to be had. 

 

Meanwhile, Starmer has been rubbing shoulders with EU leaders but has made it clear he won’t take sides in a US/EU trade spat.  This comes as support for UK’s Reform party hits 25% in a recent poll, with Labour now down at 24% and Tories at 21%. 

 

USDCAD was 1.4675 at expiry time which, for the 1.4700/1.4600 calendar spread I’d mentioned Friday was a pretty decent level.  With nothing done on the 1.47s, the 1.46s we were left with were worth around 160 cad pips, giving a healthy profit, although of course looking at the market now, selling spot against the option would have been more profitable by far. 

 

We have heard from a couple of Fed officials over the past day or so, both of whom warned against further rate cuts, a theme I think we are likely to see more of.  Bostic and Goolsbee both want to see the impact of 2024’s 1% rate cuts, plus the uncertainties emanating from Trump’s trade battles and possible inflation.

 

In sport, Chelsea managed to beat West Ham which put Chelsea back into the top four and also allowed Spurs to retain the 14th spot in the table.  Spurs have signed a couple of players in the January transfer window in an attempt to bolster their injury depleted squad, including Mathys Tel from Bayern Munich.  He is supposed to be the real deal, although I can name several players who have come to the Premier League from the Bundesliga and have failed to replicate the form they showed there.  Fingers crossed!

 

I must apologise to Mark for failing to mention Leed’s 7-0 win over Cardiff at the weekend.  Leeds are still top of the Championship, only by a couple of points but looking at their performances it is difficult to see how they wouldn’t earn one of the automatic promotion spots come the end of the season.

 

Onto today and it’s possibly a quiet morning but come the afternoon we believe Trump has more executive orders to announce, then we have the release of the week’s first tranche of US job data, this time in the form of JOLTS job openings.  We hear from a few Fed officials through the day, while tonight we’ll have the latest unemployment numbers from NZ. 

 

Have a great day…

 

-  14.00 Trump executive orders

-  15.00 US JOLTS job openings, factory orders

-  16.00 Feds Bostic speaks

-  19.00 Feds Daly speaks

-  21.45 NZ unemployment

-  00.30 Feds Jefferson speaks

-  01.45 China caixin services PMI

 

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