The extreme volatility in equity markets continues. After a 600 point drop for the DJIA on Monday, Tuesday brought a 400 point rally and this morning in Europe all of yesterday’s gains have been wiped out with a 550 point fall for the DJIA and almost 50 points off the S&P 500 index. The US Dollar had a fairly good day on Tuesday 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 to a best level of 89.85 before slipping back a little into the New York close. In Europe this morning, the US index has traded between 89.55 and 89.80 and opens in North America around 89.70.
The Trump administration yesterday imposed 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. 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 flamethrowers. 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.” Within hours, China announced 25% tariffs on 106 US products. The list includes soybeans, chemicals, whisky, cigars, some types of beef, corn and wheat. Some types of aircraft, lubricants, tobacco and orange juice are also targeted, along with some trucks and SUVs.
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 this morning in North America around 89.70.