Market wrap: Trump’s tariffs on steel and aluminium imports the theme - Westpac

Analysts at Westpac explained that most market talk was again on President Trump’s plan to place tariffs on steel and aluminium imports.

Key Quotes:

"The idea faced strong resistance from his own party including House Speaker Paul Ryan. There were even reports that Congress would try to block the tariffs. This may have been a factor in the S&P 500’s recovery from early losses.

US data also helped the mood somewhat. The Feb US ISM services sector survey held near 13 year highs at 59.5, stronger than expected, strength led by new orders (64.8, +2.1pts in the month). The employment sub-index slipped 6.6pts to 55.0, undoing the prior month's surge to all-time highs and injecting a touch of caution ahead of Friday’s payrolls report.

Underperformer CAD appeared to suffer from Trump’s tariff proposals, as he suggested that he might remove tariffs if NAFTA was renegotiated to his satisfaction. Canada would be hit hard by the tariffs. USD/CAD rose 0.9% to the cusp of 1.3000 – the highest since July 2017, despite a bounce in crude oil prices.

EUR/USD slipped to 1.2269 in early European trade, presumably in response to the strong showing by populist parties in the Italian election, though the composition of government remains unclear. But the pair was back to 1.2330 in late NY, flat on the day. While Italian shares closed -0.4%, Germany’s DAX finished up 1.5% as a Merkel-led coalition government was finally confirmed. Italian 10 year bond yields rose 4bp to 1.99% while German 10 year bunds were little changed around 0.64%.

GBP/USD bounced from 1.3815 to as high as 1.3877 on the headline from UK PM May that the government is “close to agreement on Brexit transition.” The pair later eased back under 1.3840.

The safe-haven yen performed poorly as US stocks recovered and yields rose, USD/JPY up from 105.35 to 106.20. AUD/USD initially slipped to 0.7726 before rebounding to 0.7760, flat over the day. NZD/USD similarly bounced off 0.7203 to 0.7225/30. This left AUD/NZD 0.2% higher on the day, around 1.0740.

US 10yr treasury yields rose from 2.82% to 2.89%, while 2yr yields rose from 2.21% to 2.24%. Fed fund futures continued to price three more hikes by end-2018 (with March highly likely), and another in 2019."