After the dramas in the US stock market on Easter Monday, Tuesday saw a sharp recovery with futures on the DJIA rallying 400 points from their opening level and the VIX index easing back a full point from 21.4 to 20.4. The US Dollar had a good day despite the rally in equity markets, though this was more a reflection of a sharp fall in the EUR/USD exchange rate than a more broadly-based USD rally. Its index against a basket of major currencies rose from a morning low in London of 89.45 to a best level of 89.85 before slipping back a little into the New York close. Overnight in Asia, the USD has edged slightly lower to 89.70.
The Trump administration has raised the stakes in a growing trade showdown with China by placing 25% tariffs on some 1,300 industrial technology, transport and medical products to try to force changes in Beijing’s intellectual property practices. “This level is appropriate both in light of the estimated harm to the U.S. economy, and to obtain elimination of China’s harmful acts, policies, and practices,” the U.S. Trade Representative’s office said in a report on Tuesday. In addition to advanced technologies such as communication satellites, the list includes products ranging from various types of steel to television components, medical devices, dishwashers, snow blowers and flame throwers. China’s ministry of commerce condemned the US decision. “Disregarding strong representations by China, the United States announced the tariff proposals that are completely unfounded, a typical unilateralist and protectionist practice that China strongly condemns and firmly opposes,” the ministry said in a statement overnight. “We have the confidence and ability to respond to any US trade protectionist measures… As the Chinese saying goes, it is only polite to reciprocate.”
After a lull in the US economic data calendar yesterday, it’s a pretty packed programme today. First up is the ADP employment survey for which consensus looks for a 200k monthly gain after a 235k increase in February which will surely be revised higher to bring it more into line with the actual outturn last month of 313k. later in the afternoon we have both versions of the non-manufacturing activity survey (PMI and ISM) and the February durable goods report. As we digest all that lot, the St. Louis Fed’s President James Bullard – one of the main doves on the FOMC - is scheduled to give a speech on the US economy and monetary policy whilst Cleveland Fed’s Loretta Mester will also be on the newswires. The Atlanta Fed yesterday upgraded its forecast for Q1 GDP from 2.4% to 2.8% after the ISM manufacturing and constructions spending numbers were released. The non-manufacturing ISM report isn’t an input to its GDP calculation and the next update will come on Thursday after the international trade data is published. The USD index opens in Europe this morning at 89.70.