Just before midnight last night (UK time) President Trump announced that he had ordered his chief trade negotiator to consider imposing tariffs on an additional $100bn of Chinese products, in another unhelpful escalation of the trade war with China. If the recent tariff announcements made by the US administration did take effect in the form of the initial announcements, the US would now be looking at imposing tariffs on almost a third of imported Chinese goods that enter the US. Last night’s US announcement followed rapidly on the heels of China’s move to publish a list of tariffs applying to $50bn of US goods, including soybeans and small aircraft. This morning the Chinese Commerce Ministry has indicated that we can expect another tit-for-tat response from them, having said they will take comprehensive measures to safeguard their interests. The market response so far this morning has been relatively muted in the Asia session (Chinese markets are closed), with the Nikkei 225 down 0.4%. S&P futures point to a more negative session on Wall Street however. A sharper fall-out in risk sentiment for now may well have been helped by a stream of comments from White House Economic Adviser Larry Kudlow over the past two days, highlighting that the trade talks are a negotiation and that he expects, as part of the trade deal, that barriers will come down on both sides.

UK services PMI fell sharply to 51.7 in March from February’s 54.5, a miss on consensus for a fall to 54.0 and below our forecast (also the survey low) of 52.5. This was the lowest reading seen since the initial post-referendum plunge in July 2016, with the press release suggesting that snow disruption was a key factor in holding back growth. Accordingly, the “all-sector” PMI was pulled down 2.1pts to 52.1 in March (consensus 54.0) – also the lowest since July 2016 – which IHS Markit believe corresponds to GDP growth of just under 0.3% in Q1. Market reaction was relatively muted despite the significant undershoot to expectations, with investors judging the weak reading to be a temporary weather-distorted blip.

We had more Fed Speak yesterday from Fed’s Bostic who is a voter this year. He noted that there is a little way to go before neutral rates and then once neutral rates are reach, the Fed should take a pause and see how the economy responds. On inflation, he sees the strong US economy lifting the Fed’s favoured PCE inflation measure to 2% sometime in the next quarter or two.

The day ahead

Looking at the day ahead, in Europe we have had Industrial Production data out from Germany already; this was weaker than expected with a 1.6% drop on the month against a market expectation of +0.2%. The main release of the day will be in the afternoon, which is the March employment report over in the US. The market is expecting a non-farm payroll figure of 185k, following the bumper 313k print in February. Following this, Fed Chair Powell will speak on the Economic Outlook. 

Thought of the day

Yesterday the 82nd Masters Tournament got underway and with it so did Investec’s annual Masters Sweepstake. Whether you are a golf fan, sport fan or just an occasional gambler this is one of the most highly anticipated events in the Investec social calendar. With so many of the game's best players in stellar form, and with so much buildup leading into the week, the first round concluded with a handful of expected storylines – and a few that were not so expected. Jordan Spieth has taken a two shot lead (to the delight of our Money Markets specialist Dan Godsell), closely followed by Toby Finnau and Matt Kuchar (my pick). At 25-1 defending champion Sergio Garcia seemed like a fortuitous selection at the time, but after completing the 15th in 13 strokes, the only prize he and Options Trader Rich Hall will be fighting for is the Wooden Spoon. With a total of 9 different prizes up for grabs and a grand total of £150 for first place, it is safe to say there will be a number of part-time golf fans in the office this week. To speak to one of them, give our dealing desk a call on 0800 055 6339 and I will happily dazzle you with my new-found knowledge.