European bourses firmly in the red following the sell-off seen in Asia and Wall St. with 80% of the Stoxx 600 in the red after Trump’s aluminium and steel tariffs spooked markets amid fears of potential trade wars. Industrial and auto names are the underperformers this morning over fears of production cost hikes. Noticeable laggards contain the likes of Fiat Chrysler (-5.9%), Lafargeholcim (-4.1%) ArcelorMittal (-3.8%), ThyssenKrupp (-2.8%), and Peugeot (-2.4%). DAX the worst performer as investors grow cautious over Sunday’s SPD vote and as such, the index made a breach of the psychological 12000 level.
The Dollar is on the backfoot again with the DXY unable to extend its recent rebound to or through 91.000 despite hawkish talk from 2018 FOMC voter Dudley (said four tightening moves this year would still constitute a gradual pace of policy normalisation). His comments, and Powell’s second testimony for that matter, were completely overshadowed by the latest moves from President Trump to protect US steel and aluminium producers that have triggered a fresh round of global trade war concerns (and retaliatory remarks unsurprisingly). The index is back down in the low 90.000s having marginally eclipsed nearest chart resistance around 90.900 at one stage yesterday, and the Greenback is a broad loser vs other G10s, bar the Pound and Loonie due to ongoing Brexit and NAFTA related uncertainty/risks. Yet again it is the Jpy that is outperforming and not just against the Usd, but generally as the headline pair trades sub-106.00 and close to ytd lows around 105.55, with put options at the 105.00 strike also weighing, albeit offset by reported barriers at 105.50 and the figure. Eur/Jpy has retreated a bit further below 130.00 and not far from 129.50 support, while Gbp/Jpy is eyeing 145.50. Eur/Usd has rebounded firmly above 1.2200 having slipped to a fresh 2018 low on Thursday around 1.2155, but could remain capped ahead of its 10 DMA at 1.2294 and drawn to a very big expiry at 1.2250 (3.1 bn). Cable only seeing mild upside within a 1.3750-1.3800 wide range in wake of a firmer than forecast UK construction PMI, with more focus on a speech from BoE Governor Carney and PM May’s latest Brexit address in response to the EU’s draft on Wednesday. Usd/Chf has reversed sharply on safe-haven positioning (like the Usd/Jpy and Jpy crosses) to just above 0.9350 vs almost 0.9500 late yesterday as global stocks continue to recoil on the heightened prospect of protectionism.
It’s still not all-out risk aversion or a full-on safety flight, but the 10 year EU benchmarks have gleaned more positive momentum from extended falls in equities as the anti-Trump tariff chorus grows louder and concerns about global trade wars and protectionism ratchet up. Bunds have now surpassed the next chart resistance area beyond 160.00 to reach 160.18 (+48 ticks) and Gilts continue to tag along at 121.85 (+34 ticks), but carrying some tail risk from upcoming events (BoE Carney and PM May), while USTs have pared some losses with futures now only just below parity and the long bond flat vs circa ½ point adrift at one stage.
Across the commodity complex, newsflow has been dominated by Trump’s announcement on import tariffs for steel and aluminium. Following this, aluminium futures fell 0.5%, while Shanghai steel prices 5-day rally came to a halt amid fears that the tariff plan could lead to a glut. Precious metals hover around yesterday’s high as risk off flows support gold, alongside the softer USD. WTI and Brent crude futures trending lower this morning with prices dictated by the risk off sentiment. Levels to the downside for Brent which may over some support is situated at USD 63.19 (yesterday’s low) at USD 61.75 (double bottom)