Skittish markets

Donald Trump roiled markets yesterday when he announced he was doubling the tariff (to 50%) on steel and aluminium imports from Canada in response to Ottawa’s decision to impose a 25% surcharge on electricity exports to the US, though there was some relief later when the two sides agreed to suspend the moves to allow for talks later this week. Amidst all of this, the euro and sterling rose to new highs against the dollar of (circa) $1.0950 and $1.2970 respectively, but they both eased back subsequently and are trading at around $1.0910 and $1.2930 this morning ahead of CPI inflation data in the US this afternoon. EURGBP is little changed from yesterday morning trading at around £0.8430.

In bond markets, German 10-year yields resumed their ascent, increasing by around 5bps to 2.90% (now up 40bps in a week), though 2-year yields were marginally lower on the day, while US 2-and 10-year yields rose by 5-6bps. In equity markets, European stocks shed another 1.5%, while US indices partially erased earlier losses but the S&P 500 still finished down almost 1% (bringing its losses since its all-time high just three weeks ago to almost 10%). European stocks have opened higher this morning, with the potential for a ceasefire in the war in Ukraine probably helping sentiment.

Yesterday’s economic data in the US were a mixed bag. The small business optimism index fell in February amid increased uncertainty about the economic outlook and concerns about cost increases, while job openings rose and the jobs layoff rate fell in January, consistent with other indicators pointing a resilient labour market.

Today’s CPI report in the US is expected to show both headline and core consumer prices rose by 0.3% in February (from January), which would see the annual rates of headline and core inflation ease to 2.9% and 3.2% respectively (from 3% and 3.3%). Meanwhile, there are a number of ECB members scheduled to speak over the course of the day, including President Christine Lagarde and Chief Economist Philip Lane.