|Today's data releases||Key levels|
|09.00||EU manufacturing PMI||GBP/USD||1.3890||1.4278|
|09.30||UK manufacturing PMI||GBP/EUR||1.1135||1.1560|
The tit-for-tat tariff moves between the US and China, the ongoing reshuffle at the White House and a tech tantrum all played a role in this.
US equities finished their first trading day of Q2 down sharply amid continuing concerns over a trade war and as tech stocks were under pressure amidst fears of rising political, regulatory and market challenges that could hinder the US tech industry’s growth. The S&P 500 dropped 2.2% yesterday and now stands more than 10% off its January high (i.e. a technical market correction) whilst the Nasdaq saw a loss of 2.7% yesterday. The selloff came after China confirmed on Sunday that it would press ahead with tariffs on 128 US imports totalling around $3bn, with the front page of the People’s Daily justifying them in order to "balance the losses" caused by the US steel and aluminium tariffs. The US is expected to announce fresh tariffs on $50-60bn of Chinese imports on Thursday or Friday with a 30-day comment period following an investigation under Section 301 of the 1974 US Trade Act. Chinese authorities seem to be gearing up to respond in a tit-for-tat fashion, with Beijing’s ambassador to Washington Cui Tiankai warning that China would hit back with counter-measures of the “same proportion, and the same scale, same intensity”.
Additional concerns over growing protectionism came after US President Donald Trump took another swipe at NAFTA on Monday, saying that Mexico “is making a fortune” from it, raising fears that the US could withdraw from the free trade agreement (rather than continue with renegotiation). Meanwhile, specifically on the tech stocks front, Trump continued to take aim at Amazon in a string of tweets over the weekend and promised unspecified changes to address what he argues is unfair pricing of deliveries through the USPS.
The week ahead
The big events of this week are backloaded for Friday, where we have the March employment report in the US, expected to come in with a 185k payrolls print (this follows a bumper 313k reading in February). Following this, we will hear from Fed Chair Jerome Powell, where he is expected to speak for two hours on the economic outlook. Powell is expected to reiterate the upbeat outlook he presented in the March FOMC meeting. That said, he will not be speaking on behalf of the committee so it will be interested to see if he will relay any of his personal views. Throughout the week we will be presented with PMI/ISM surveys in the UK, EU and the US; UK and EU manufacturing PMIs (Tue), the US ISM non-manufacturing (Wed) and UK and EU services/composite PMIs (Thu). In Europe we will also have the March flash CPI estimate on Wednesday.
Thought of the day
Things remain quiet on the data front today but markets will almost certainly be looking for further comment on the trade tensions. On the political scene Donald Trump on Monday expelled 60 Russian diplomats considered spies from the U.S., the most since 1986, demonstrating united resolve with Europe after the UK blamed Vladimir Putin’s government for a March 4 nerve-agent attack on a former Russian spy living in England. All told, more than 100 Russian envoys will be sent home from capitals across Europe and North America. Watch for further escalation here!