US cash equity markets closed in negative territory. Bourses had opened to the upside but turned negative, along with the Greenback, after news broke that Rex Tillerson had been replaced as the Secretary of State by former FBI Director Mike Pompeo. We later learned that the Under Secretary of State Steve Goldstein is being fired for contradicting the account of Rex Tillerson’s dismissal. In later remarks, Tillerson said the campaign of maximum pressure against North Korea has succeeded beyond expectations, adding he has achieved cease-fires in Syria that prevented loss of life but much more needs to be done. Tillerson stated there is much work to do to establish a clear relationship with China, adding if Russia continues on its current path it will become increasingly isolated. Treasuries, meanwhile, ended higher after a fairly dull US CPI report – headline CPI was in line at +2.2% y/y, as was the core rate at +1.8%. There was also minimal reaction to the US $13.0 Bln 30-year bond sale that stopped through 0.5 basis points to 3.109%. Elsewhere, the Canadian Dollar was the laggard among the G10’s after relatively dovish remarks from Bank of Canada Governor Poloz who said Canada may be able to achieve “more economic growth without . . . generating higher inflation”. In energy space, US crude futures settled at $60.71 (-$0.65). Oil prices made slight gains in post-settlement trade after private inventory data showed a smaller than expected build in crude inventories and draw in distillates. In other news, the draft G20 communique said one risk to outlook on the global economy is a retreat to inward looking policies.
Following the US close, a US Senior Administration Official says in the very near future, new tariffs on China are expected, adding tariffs aimed at tech and IP, could cover more than 100 products but the final number is unknown. Meanwhile, a source who has discussed the matter with the White House cites that the Trump administration is looking to impose tariffs on $60 Bln of goods from China.
Before the open in Asia, RBA Assistant Governor Kent said indeed, accommodative monetary policies have encouraged greater risk-taking by both lenders and borrowers, adding this is one of the important ways in which the monetary transmission mechanism works. In the Q&A that followed, he said there is no reason why moves from the RBA have to be in 25bp increments, adding current good economic growth raises the risk of a pickup in pressures on the CPI. Lastly, markets could be under-pricing risk of faster global growth. Data wise, New Zealand’s BoP current account balance logged a larger than expected deficit of NZ$2.77 Bln (f/c -NZ$2.45 Bln) in Q4, while Australia’s Westpac consumer confidence rose 0.2% m/m in March.
Following losses at the close on Wall Street yesterday, Asian stocks followed suit after the firing of US Secretary of State Tillerson. Data wise, Chinese industrial production rose 7.2% (f/c +6.2%) YTD y/y in February, while fixed assets excluding rural increased 7.9% (f/c +7.0%) YTD y/y. Meanwhile, Chinese retail sales gained 9.7% (f/c +9.8%) YTD y/y in February. In Japan, core machinery orders jumped 8.2% (f/c +5.2%) m/m and 2.9% (f/c -0.7%) y/y in January. We saw the release of the BoJ’s January meeting minutes which showed little surprises, they showed most members stated momentum towards hitting price goal was being maintained and shared the view the BoJ should pursue powerful monetary easing persistently. They showed one member stated the BoJ would need to consider adjusting rate levels if economic activity and prices continue to improve, while one member said it was undesirable to let market speculation heighten that the BoJ may adjust monetary easing slightly at an early stage. One member mentioned there was room to use fiscal policy to overcome deflation and one member said effects and side-effects of the BoJ’s ETF purchasing must be examined from every angle. The Yen was largely unchanged on the minutes. We also heard from Japanese PM Abe and Finance Minister Aso, who said they never instructed ministry officials to change documents related to discount land deal. In other news, the PBoC set the yuan mid-point at 6.3205 against the Dollar.
Looking ahead, at 07:00 GMT, we get German CPI, followed by Spanish retail sales at 08:00 GMT. Next at 08:30 GMT, we get Swedish CPI, followed by Italian retail sales at 09:00 GMT. Then at 10:00 GMT, we get Euro Zone industrial production and employment change, followed by US MBA mortgage applications at 11:00 GMT. On the speaker front, a few ECB speakers ahead with Coeure at 07:30 GMT, President Draghi at 08:00 GMT, Praet at 08:45 GMT and Vice President Constancio at 10:45 GMT. Auction wise, Germany sells €1.5 Bln 2048 notes and Portugal sells 2028 & 2045 bonds at 10:30 GMT. Also of note, we get the OPEC monthly report at 11:20 GMT.