US cash equity markets fell sharply yesterday while the Dollar and yields followed suit after US President Trump confirmed plans to place tariffs on steel and aluminium next week (DJIA -1.7%, S&P -1.3%, NASDAQ %). The proposed move has sparked concerns of a trade war with various officials already warning that they will retaliate in kind. There is also a potential inflationary concern in the US and this was mentioned by New York Fed President Dudley who also noted that four rate increases this year would still constitute a gradual pace.
Asian stocks were also hit by trade comments, with steel producers and auto makers leading declines (NIKKEI -2.5%, S&P/ASX -0.7%, SHANGHAI COMPOSITE -0.4%). Data wise, Japan’s jobless rate dropped to 2.4% (f/c +2.8%) in January, its lowest since April 1993, while the job-to-applicant ratio held at 1.59 (f/c +1.60). Meanwhile, Tokyo CPI data rose 1.4% y/y, as expected, while excluding fresh food rose 0.9% (f/c +0.8%) y/y and excluding fresh food & energy rose 0.5%, as expected, in January. Also of note, Japan’s monetary base jumped 9.4% y/y in February. The Japanese Yen was largely unchanged on the release of the data before continuing to strengthen as the session wore on trade war concerns. Further Yen gains were seen in recent trade after comment from BoJ Governor Kuroda who said they will consider an exit from their current policy stance around fiscal 2019. Meanwhile, Japanese PM Abe said the government and the BoJ must work together closely and deploy all means available to defeat deflation
Looking ahead, futures are pointing to a broadly lower open in Europe. UK PM May’s Brexit speech will be the main focus for investors, expected to begin around 08:00 GMT. We also await German retail sales, Italian GDP, UK construction PMI and Euro Zone PPI alongside possible comments from BoE Governor Carney and ECB’s Mersch.