US MARKET WRAP: Markets spooked by concerns of global trade wars

SNAPSHOT: Stocks drop on US protectionism concerns, USD red, Treasury yields flatten, oil slips

EQUITIES: SPX -1.3%, DJI -1.7%, NDX -1.5%
* A combination of protectionism/trade war fears (Trump set to announce aluminium and steel tariffs next week) and in the background, the growing narrative that the US may see four hikes this year weighed on equities. The former was the key driver, and while steel names were firmer, companies in the industrial and autos sector bemoaned the likely production cost hikes (O&G names, as well as autos). The result was the EMINI tumbling through multiple technical levels to print lows around 2660, before consolidating around 2670.

* ENERGY -0.2%: RRC among the top performers after earnings on Weds. 
* MATERIALS -1.1%: Steel names (AA, CENX, AKS, NUE, STLD, X) buoyed after Trump said US will impose steel/aluminium import tariffs next week. 
* INDUSTRIALS -2.0%: BRK.A said to be building take in UPS.
* CONS DISC -1.1%: FCAU Feb vehicle sales better than exp -1.4% vs -11%; F Feb sales worse than exp -6.9% vs exp -6%; GM feb sales worse than exp -6.9% vs -4.5%; BBY earnings and rev beat, boosts dividend; gun names AOBC and RGR higher after WMT and KR raise minimum age to buy guns. Icahn confirms he has built stake in NWL. JWN reports amc, watch for SSS and any updates on financing to take the co private; GPS reports amc. KSS and LB lower after earnings. 
* CONS STAP -0.4%: MNST among worse performers after Weds amc earnings. 
* HEALTH -1.6%: Trump has spoken to US AG Sessions about legislating against opioid names. PDCO among worse performers after earnings; HUM reaffirms guidance. 
* FINANCIALS -1.9%: Senate will consider bank deregulation next week, leader McConell said; Wells Fargo (WFC) wealth management unit said to attract attention from the DOJ.
* IT -1.7%: Sector pressured amid risk-off.
* TELECOMS: -0.3% QCOM says ready to engage with AVGO on deal price. 
* UTILITIES -0.1%: NRG higher after earnings.

TREASURIES: US T-Notes settle 17+ ticks higher at 121-06+.
* Yields continued to narrow across the curve, with most of the action in the belly, where yields were as much as 6bps lower. The narrowing the short end saw 2s yields back to the bottom of its recent range, a reprieve after printing new cyclical highs this week. The long-end underperformed. The Tplex was bid all day, but found fresh buying impetus amid risk-off inspired by protectionist news that the US would impose tariffs on steel and aluminium imports next week. 
* At settlement: 2s 2.2137% (-4.8bps), 5s 2.5814% (-6.9bps), 10s 2.8114% (-5.7bps), 30s 3.09 (-3.9bps). Major curve spreads were little changed; with 2s5s 2bps narrower, while 5s30s was 2.5bps wider. 

CRUDE: WTI futures settle 65 cents lower at $61.99/bbl; Brent futures settle 90 cents lower at $63.83/bbl. 
* Crude is still nursing losses incurred after this week’s bearish inventory data rounds-off the first negative month for oil prices since August 2017. The sour equity tone also weighed, pushing crude towards lows above $60/bbl for WTI, and Brent just above $63/bbl.
* Ineos says Forties flows are continuing normally; Forties oil loading restrictions stated as lifted at Hound Point.
* There was limited support from UAE, where production has been trimmed 70k BPD due to maintenance. Some desks believe that seasonal date unlikely to offer much support, and as noted yesterday, some desks cannot see many bullish catalysts for crude in the weeks ahead, absent unforeseen supply shocks. 
* Libyan crude output said to have reached 1.1mln BPD.
* Russia energy min Novak says Russia in full compliance with its production cuts deal in February, oil market rebalancing is going well. 
* American Petroleum Institute says Trump tariffs on aluminium and steel would raise costs in the oil and gas sector.

* While Fed chair Powell was slightly cautious in his Senate testimony vs his House testimony on Tues, a hawkish Dudley (voter) provided today’s dose of Fed hawkishness (four hikes is seen as gradual – see USD). But even before then, XAU had breached YTD lows around 1308, going as low as the $1302 support level. There was an afternoon bounce higher as US stocks sold-off, however, the magnitude of gains weren’t particularly hugeand we returned to the $1308 mark. 

* After it emerged that the US will impose steel and aluminium tariffs on imports next week, the DXY began giving back some of the gains it had printed in the day (as high as 90.932). While EUR was magnetic to 1.22, after EU’s Juncker complained and suggested that the EU would take its own action in response, the single currency printed fresh highs; meanwhile, the CAD dropped from fresh YTD highs just beneath 1.2895, moving back towards the 1.2850 mark. 
* Trump advisor Cohn was said to have objected to Trump tariff decision today.
* Fed chair Powell leaned-back struck a more cautious tone in his testimony to the Senate, suggesting that evidence of a decisive pick-up in wages is lacking. Powell did, however, state that he expects wages to increase going forward, and repeated his view for gradual hikes. Powell also mentioned global trade, arguing that tariffs may not be the more appropriate way to deal with trade disputes.
* Fed’s Dudley (voter), who on 8/Feb said three hikes in 2018 was very reasonable, today made the case the four hikes is consistent with ‘gradually’ lifting rates.
* US Jan core PCE  1.5% yy (exp 1.5%) vs 1.5%; 0.3% mm (exp 0.3%) vs 0.2%.
* US Jan personal income 0.4% (exp 0.3%) vs 0.4%; personal spending 0.2% mm (exp 0.2%) vs 0.4%; analysts noted that core inflation rose as real spending weakened.
* US Feb ISM mfg 60.8 (Exp 58.7) vs 59.1; analysts noted that while the headline was stellar, it was buoyed mostly by lagging metrics (inventories, deliveries and employment), while new orders and production slipped slightly. 
* US weekly claims 210k (exp 226k) vs 222k, 4wk moving avg vs 226k; cont claims 1.931mln (exp 1.93mln) vs 1.847mln (from 1.875mln).
* US Feb final mfg PMI 55.3 (exp 55.9) vs 55.5.
* US Jan construction spending 0.0% mm (exp 0.3%) vs 0.7%. 

* Sterling was hit by Brexit news flow as well as broader USD strength. GBP saw lows above 1.37 (the figure held) and fell to just shy of 0.89. Analysts are struggling to find a bullish narrative for sterling amid the Brexit negativity. However, some desks warn that recent declines on souring Brexit sentiment may be vulnerable to correct sharply higher on any hint of ‘good news’, and accordingly, attention now falls on PM May’s Friday speech on Brexit.
* Tusk/May’s meeting was said to be ‘open and honest’, with the focus on content and process towards the future relationship post-Brexit; Northern Ireland transition was discussed. Source says real political difficulties lie ahead.
* UK PM May spokesperson says good progress has been made in reaching agreement on transition period, following May’s meeting with EU Council President Tusk.
* EU’s Barnier says UK is closing the door on Brexit solutions, and he suggests the only model left is a free trade agreement. Adds all other models available if the UK is willing to accept balance of rights and obligations.
* Reports suggest that Brexit Sec Davis has threatened that the UK will refuse to pay a divorce bill until EU backs down on attempts to keep Northern Ireland within the customs union, and UK will not agree any bill until “all the issues” have been finalised.
* UK Feb mfg PMI 55.2 (exp 55.0) vs 55.3; headline at lowest since June 2017, points to UK mfg sector has lost momentum in Q1 (pointing to 0.5% mfg output growth in Q1 vs 1.3% in Q4). Some note signs that the boost to exports from the drop in sterling is fading after export orders slipped. 
* UK Jan Money supply 1.5% vs -0.6%; Jan mortgage lending 3.39bln (exp 3.6bln) vs 3.683bln; Jan consumer credit 1.357bln (exp 1.4bln) vs 1.58bln (from 1.52bln). Generally data gives reasons to think that the broader economy has not lost too much momentum, some analysts argued.
* Feb Nationwide -0.3% mm (exp 0.2%) vs 0.6%; 2.2% yy (exp 2.6%) vs 3.2%.

* After US stocks tanked on protectionist fears, and the SPX tripped through its 100dma, there was a broad flight away from the USD (and the bid in Tsys), led by USDJPY moving lower, breaking the bottom-end of its overnight range (near 106.50), to find support around 106.20 – a level that was in focus in teh early part of Feb. 
* Japan Q4 capex 4.3% yy (exp 3.0%) vs 4.2%. Data suggests that Q4 capex was stronger than initially reported, but some analysts say alone won’t lift GDP growth. This data is the basis for any revisions to non-resi investment in the second Q4 gdp estimate, due next week. 
* (Overnight) Japan Feb mfg PMI 54.1 (exp 54.0) vs 54.0.
* (Overnight) BOJ gov Kuroda said easing has added to Japanese growth, though added wages and inflation have been somewhat weak.
* (Overnight) BOJ Kataoka said BOJ must ease more to lower 10yr+ yields and reach price target quickly, and add additional easing if achieving price goals are delayed; added there is still quite a distance to policy normalisation. 

* The CAD firmed against the USD, sending USDCAD from fresh YTD highs below 1.29 back to the 1.2830 region, which was capping price action yesterday. 
* Q4 current account -16.4bln (exp -17.65bln) vs -19.35bln.
* CA Feb mfg PMI 55.6 vs prev 55.9.

* Moves in the MXN were more muted than say the CAD after today’s protectionist news out of the US, and amid the afternoon dollar route, the peso remained within its range (18.82 to 18.94).
* Mexico Steel Industry body says Mexico should respond reciprocally and immediately to any US steel tariffs.
* In the latest round in Mexico City, NAFTA negotiators said to have completed work on regulatory practices ‘chapter’ (which would complete the fourth of 30 chapters), sources report.
* Banxico inflation report (weds) highlights inflation risks are to the upside given economic uncertainties (potential weakening of MXN amid NAFTA uncertainty, Fed tightening cycle, volatility around Jul election). Banxico exps inflation to hit 3.0% target Q1 19 (vs Q4 18 in the prev Nov QIR). Growth forecasts unchanged. Some analysts argue risks to inflation could motivate the Banxico to hike 25bps on 4/Apr.