Wild swings in global equity markets have become the new normal over recent weeks. U.S. equity markets recovered strongly yesterday after a deep sell-off on Monday.
However, global equities are sea of red this morning on an escalation of a potential tit-for-tat trade war between the Trump administration and China. Overnight, China announced it would levy an additional 25% tax on around $50 billion on U.S. imports including soybeans and aircraft. The move roughly matches the Trump’s announcement yesterday. Implied futures show American stocks indexes will open between 1.5%-2.0% lower. However, currency markets have once again largely ignored the developments, save the Japanese yen that climbed on its safe-haven status.
On the domestic front, economic data painted a rosy picture for the labor market. ADP reported that private sector jobs increased by 241K jobs in March, beating expectations of a 210K reading. February’s print was also upwardly revised. Strong private jobs data may foreshadow a good Non-Farm Payrolls reading on Friday, which would likely lead to heightened interest rate expectations. However, the dollar’s correlation to interest rate expectations has fallen over the past year so good jobs data may not have the strong effect on the greenback we would have once expected.
Later this morning, Markit service and ISM non-manufacturing prints will cross the wires, followed by Durable goods at 10 a.m.
The Euro was mostly unchanged overnight but remains near its weaker part of its most recent, tight range. The common currency was unable to take advantage of a good economic docket. Headline CPI for March for to 1.4%, up from a revised 1.1% in January. The unemployment rate for the EU also ticked modestly lower to 8.5%, which represents the lowest rate since the financial crisis.
After gaining yesterday, the Canadian dollar is weaker today amid worries of a global trade war. The U.S. is Canada’s largest trading partner and the appearance of aggression towards trade imbalances with China may spell trouble for NAFTA as well. The Loonie was also lower as the price of crude oil fell by 1.4%, reaching its lowest level since March 20th.