April 4, 2018, by Lorcan Roche Kelly
Yesterday, the Office of the U.S. Trade Representative published a (very long) proposed list of products imported from China that would be targeted for additional 25 percent tariffs. This morning, authorities in Beijing retaliated with their own protectionist plans on some $50 billion of U.S. goods. The agricultural sector, a key voting demographic for President Donald Trump, seems to have been hit hardest, with additional duties on aircraft also announced. At a press conference, Vice Finance Minister Zhu Guangyao says there is room for negotiation to avoid an all-out trade war.
The response from Chinese authorities is roiling stocks. S&P 500 futures were down 1.4 percent by 5:45 a.m. Eastern Time, indicating the erasing of Tuesday’s rally at this morning’s open. Overnight, the MSCI Asia Pacific Index dropped 0.6 percent, with Japan’s Topix index, which closed before the China announcement, ending the session with a 0.1 percent gain. In Europe, the Stoxx 600 Index was 0.8 percent lower, with Germany’s exporter-heavy DAX Index leading the losses. The 10-year Treasury yield was at 2.770 percent and gold was higher.
The inflation rate in the euro area rose to 1.4 percent in March, in line with economist expectations, further bolstering arguments for the ECB to phase out stimulus. A measure of core inflation remained unchanged at 1.0 percent with analysts suggesting an earlier-than-usual Easter holiday masked the data. A separate release showed that unemployment in the common-currency zone dropped to 8.5 percent in February, a nine-year low.
Early support to crude lent by a Bloomberg report showing OPEC production dropping to the lowest level in a year was fleeting. In the wake of the China tariff announcement, a barrel of West Texas Intermediate for May delivery fell more than a dollar to $62.38 by 5:45 a.m., hitting the lowest intraday price since March 20. At 10:30 a.m., the EIA issues the U.S. oil inventory report, with consensus calling for a 2 million barrel increase.
At 9:45 a.m., Markit U.S. services and composite PMI data for March are released. At 10:00 a.m., factory orders numbers for February are expected to show a 1.7 percent increase, with durable goods orders out at the same time. There are two Federal Reserve speakers on the slate for today with St. Louis Fed President James Bullard at 9:45 a.m. and Cleveland Fed President Loretta Mester at 11:00 a.m.