The U.S. trade deficit narrowed in April as both exports and imports tumbled, highlighting the impact of President Donald Trump's tariffs even before negotiations with China unraveled and he threatened levies on Mexican goods.The deficit in goods and services shrank to $50.8 billion, nearly in line with economist estimates, from a revised $51.9 billion the prior month, according to a Commerce Department report Thursday. The merchandise-trade gap with China increased to $29.4 billion while the Mexico deficit narrowed to $7.9 billion. Meanwhile, Canada's Trade Gap came in at six month low as Exporters rebounded.
Treasuries rallied, while stocks trimmed gains as traders assessed mixed data from the world's largest economy. Oil tumbled as crude inventories delivered an unexpected build. The 10-year bond yield fell back below 2.1% as weak private jobs data outweighed a report showing service industries beat estimates. The Mexican peso rose after White House trade adviser Peter Navarro said that the Trump administration's plan to impose tariffs may not have to go into effect. Investors have aggressively increased bets the Fed will ease after a string of weak reports on retail sales, factory orders and home purchases indicated growth is slowing as the trade war weighs on businesses. While the service industries expansion report was robust, the ADP data suggest payroll gains in Friday's jobs report in the Labor Department could be lower than expected. "The weaker ADP report that just came out aligns with the drop in business sentiment we have been monitoring," said Matt Miskin, a market strategist at John Hancock. Investors will be watching the NFP report on Friday with anticipation to see if the jobs market is indeed starting to cool down.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The CAD and GBP were the worst performing currencies this week while the JPY outperformed. USDCAD climbed from 1.3430 up to 1.3547 before falling back to 1.3485. In early Asian trade Friday, Trump announced upcoming tariffs on all U.S. imports from Mexico – just hours after U.S. officials were promoting the new Canada /U.S./Mexico trade agreement. This caught the market off-guard sending USDCAD up to 1.3543. The move extended to 1.3565 in the London session – the highest since Jan. 3 and within 1 cent of a 2 year high. Canadian GDP data out Friday morning indicated a strong recovery underway in March from the low growth levels seen in Q4 2018 and Q1 2019. USDCAD managed to finish the week at 1.3508 – only ¾ of a cent higher which is surprising given that oil prices plunged 11% over Thursday and Friday. Since peaking near 6 month highs at $66.50 on April 23, oil prices have since fallen 21% towards 4 month lows. Also, North American equity markets – specifically the TSX and DJIA, sold off to the lowest levels in nearly 3 and 4 months respectively. The risk-off attitude in the markets boosted the JPY towards a 5 month high while the GBP dropped towards a 5 month low.
U.S. stocks rose and bonds pared losses after Federal Reserve Chair Jerome Powell signaled openness to rate cuts amid trade tension. The S&P 500 Index halted a two-day slide after antitrust fears erased more than $130 billion in market value from tech giants. While some analysts see the pullback as a buying opportunity, the recovery of stocks such as Alphabet Inc. was tepid. Investors are attempting to find their feet after a rout that pushed the S&P 500 into technically oversold territory for the first time this year. Powell pledged to keep a close watch on fallout from a deepening set of disputes between the U.S. and its largest trading partners. Traders have aggressively increased bets the Fed will cut interest rates this year after President Donald Trump widened ongoing trade tensions when he threatened last week to slap new tariffs on Mexico unless it stemmed migrant flows to the U.S.
U.S. stocks rose as a rebound in oil prices lifted energy companies, outweighing a rout in tech giants prompted by a report that the government is considering antitrust investigations. Energy producers led gains in the S&P 500 Index as crude jumped after Saudi Arabia offered reassurance that OPEC will keep global markets in balance. The yield on two-year Treasuries headed for its biggest two-day decline since January 2008. After a brutal month for most asset classes except bonds, June began with no let-up in geopolitical risks and economic concern. China implemented retaliatory tariffs and data showed global factories took another knock last month from trade tensions, adding to fear over a slowdown. A U.S. manufacturing index fell to its lowest level in almost a decade amid a fresh warning from Wall Street about recession risks. Meanwhile, President Donald Trump's tariff moves against Mexico last week sparked a wave of forecast revisions. A global recession could start within 9 months if the U.S. imposes 25% tariffs on an additional $300 billion of Chinese exports and Beijing retaliates, according to Morgan Stanley. Separately, JPMorgan said the probability of a U.S. recession in the second half of this year had risen to 40% from 25% a month ago.
Yesterday, USDCAD dropped from 1.3520 down to 1.3485 before climbing to hold a 1.3495 – 1.3517 range for the balance of the session. The pairing had broken above recent resistance between 1.3510/22 and extended to 1.3542/47 – the highest level since Jan. 3 before falling towards 1.3508 on Wednesday. In early Asian trade, Trump announced a 5% tariff on all goods from Mexico effective June 10th. This would rise in stages to a possible 25% by October if Mexico did not do more to curb illegal immigration. USDCAD spiked from 1.3495 up to 1.3540 accordingly. The risk-off mood overnight saw USDCAD eclipse Wednesday's high of 1.3547 and extend to 1.3565. Canadian GDP data was better than expected for March and despite a 2.25% drop in oil prices (which have fallen 14% over the past 10 days towards a 3 month low) USDCAD has declined back to 1.3508. Subsequent rallies have been limited to 1.3525/30.
U.S. economic growth remained robust in the first three months of 2019, according to an updated government estimate, while corporate profits weakened at the start of the year. Gross domestic product, a broad measure of the goods and services produced across the U.S., rose at a 3.1% annual rate in the first quarter, adjusted for seasonality and inflation, the Commerce Department said Thursday. Meanwhile concerns over the trade war between China and the U.S. still have markets on high alert.
The Bank of Canada left interest rates unchanged for a fifth straight decision and continued to signal it sees no need to move borrowing costs anytime soon, even as it expressed growing confidence the economy is rebounding. At a rate decision today, policy makers in Ottawa said recent data have "reinforced" their view a recent slowdown at the end of 2018 and early 2019 was temporary. However, they said mounting global trade risks are "heightening uncertainty" around the outlook. "In this context, the degree of accommodation being provided by the current policy interest rates remains appropriate," the central bank said in its statement, reiterating it will remain data dependent and closely monitor developments in household spending, oil markets and global trade. The recent policy pause is a reflection of an economy only just emerging from a serious slowdown, and which remains too fragile to cope with higher rates. Even without global trade uncertainties, the recent weakness has opened up enough slack to warrant the need for simulative rates, as least for now.
U.S. stocks rebounded from a third straight weekly decline, led by technology shares that bore the brunt of the decline as investors positioned themselves for what could be a protracted trade dispute with China. Treasuries advanced, sending 10-year yields to a 17-month low.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The JPY and the EUR were the top performing currencies this week while the GBP and USD lagged behind. With global equity markets falling towards 3 month lows, the flight to safety boosted the JPY and EUR. The GBP had fallen almost daily for the past three weeks nearing 5 month lows vs the CAD and 2 year lows vs the USD before rising late in the week - surprisingly even after UK PM May announced her resignation. USDCAD dropped from 1.3460 down to 1.3395 early in the week and extended down to 1.3357 early Wednesday as Canada posted a strong retail sales report. The 1.3380/1.3400 support zone in place the past 5 weeks was effectively broken but the pairing snapped back to 1.3440. The USD saw some brief strength on Thursday with the USD index (DXY) re-testing 2 year highs. Global equity markets sold off sharply with the DJIA down more than 400 pts at one point. Oil prices (WTI) plunged from $61.45 down to $57.34 – a one day drop of nearly 7%. WTI had tested $64 on Monday – near a 7 month high before falling to 2 month lows on Thursday. USDCAD climbed to 1.3502 briefly before falling back to 1.3465 on broad USD declines as the U.S. 10 year treasury yield fell to 2.29% - near an 18 month low. The 10 year yield had been as high as 3.25% back in November. USD weakness continued through Friday's session as U.S. durable goods order data missed estimates and saw significant negative revisions to prior data. Equity and commodity markets also recovered taking USDCAD from 1.3483 down to 1.3430.
Stocks rose in Europe on Monday after markets traded mixed in Asia as investors mulled three weeks of global declines amid escalating U.S.-China trade tensions. Core sovereign bonds in the European Union advanced after mainstream parties held their ground against populists in elections. The Euro Stoxx index climbed, helped by Fiat Chrysler's proposed merger with France's Renault, which drove up both carmakers' shares. U.S. stock futures drifted. Italian bond yields jumped as the country was said to face a $4 billion fine over failure to rein in debt. The yuan steadied after a senior Chinese economic official said speculators "shorting the yuan will inevitably suffer from a huge loss." The yen fell as the U.S. and Japan discussed a trade deal. The euro held most of its gains from Friday, while the dollar rose against a basket of major currencies. With holidays in the U.K. & the U.S. today, trading volumes could be lighter than usual.
Yesterday, USDCAD climbed from 1.3430 up to 1.3500 after having fallen to a 1 month low of 1.3357 on Wednesday. The main catalyst was a near 6% plunge in oil prices and a 400+ point drop in the DJIA. North American equity markets managed to recover somewhat and USDCAD eased back to hold a 1.3465/88 range for the balance of the session. Overnight, global equity markets recovered from yesterday's sell-off while oil prices moved back towards the $59 level. U.S. durable goods data came in weaker than expected and the USD is now the worst performing currency on the day. USDCAD dropped to session lows at 1.3439 after the data this morning before moving back up to 1.3465 as oil prices reversed back towards $57 and equity markets gave up the bulk of earlier gains. USDCAD has since eased back towards session lows. The GBP has been especially resilient today after PM May resigned and front-runner Boris Johnson commented on a possible "Hard-Brexit".
Stocks slumped globally on Thursday and traders took refuge in gold and bonds as the simmering trade dispute between the world's two largest economies took a greater toll on markets. The yen gained along with the dollar as the flight to safety continued. Meanwhile 10 year Treasury yields fell to their lowest level since 2017. Energy shares slumped as oil fell below $60 a barrel.
Most U.S. stocks declined on news that the White House was prepared to target more technology firms in its trade wrangling with Beijing, while U.S. Treasury Secretary Steven Mnuchin said President Donald Trump is likely to meet with his Chinese counterpart at the end of June. The S&P 500 Index opened lower after reports that the White House was considering blacklisting China's video-surveillance firms. But Mnuchin's remarks Wednesday may help fuel optimism that trade talks can still bear fruit. Meanwhile, energy shares slid along with crude futures after the EIA reports an unexpected buildup in U.S. oil and gasoline stockpiles. Debt and equity markets continue to run hot and cold as investors react to the near-daily salvos in the U.S.-China trade conflict, trying to size up how much damage they will bring to growth and supply chains. Investors will have more data to chew on after the release of the minutes from the Federal Open Market Committee's April 30-May 1 meeting.
Stocks headed cautiously higher Tuesday morning following a temporary reprieve on restrictions on U.S. exports to China telecom giant Huawei Technologies, reflecting a slight reduction in one front of the Sino-American tariff war. U.S. officials said late Monday they would offer some temporary exceptions to an export blacklist against Huawei Technologies Co., which will provide some suppliers and customers of China's telecom giant a 90-day reprieve from tough trade penalties—a move that appeared to soothe investor anxiety somewhat.
Yesterday, USDCAD dropped from 1.3450 down to 1.3400 before climbing back to hold a 1.3455 - 1.3470 range for the balance of the North American session. Equity markets and commodity currencies were under pressure last night as reports suggest China has no interest in trade negotiations with the U.S. until the U.S. shows some sincerity. The GBP fell for the 9th out of the past 10 days after Brexit talks stalled yet again. USDCAD climbed to 1.3514 - just shy of the 4 month high of 1.3522 tested back on April 24th. Trade above 1.3500 was short-lived and the pairing has fallen to session lows at 1.3455. The DJIA winning streak looks to continue now up 4 straights days after erasing a 200 point deficit this morning. There are further details on the removal of steel and aluminum tariffs first reported Wednesday that are helping push the CAD higher – it is now the best performing currency on the day after opening today's NA session as the worst performing currency next to the GBP.
The rebound in risk assets from the trade-fomented sell-off continued, with U.S. stocks rising a third day and Treasuries slumping anew even as markets remain susceptible to fresh tariff headlines. The S&P 500 headed for the biggest three-day rally in more than a month, boosted in part by solid earnings from Cisco Systems Inc. and Walmart Inc. along with strong housing data. Trade tensions remained in the forefront, though, as the Trump administration threatened to blacklist China's Huawei Technologies Co. and Walmart warned tariffs would lead to higher consumer prices. The 10-year yield topped 2.4% and the dollar strengthened.
U.S. stocks turned higher on the prospect that President Donald Trump will delay imposing tariffs on auto imports. The S&P 500 wiped out declines of as much as 0.7% after it was reported the president would delay by up to 6 months a decision on car tariffs that was due by Saturday. The tech-heavy Nasdaq 100 also rose as Treasury Secretary Steven Mnuchin added to hopes of a trade deal when he said U.S. officials were in serious talks with China to improve trade ties. Shares fell in early trading after weak U.S. retail and factory numbers spurred growth concerns. Treasuries gave back gains after the 2-year yield touched the lowest level since February 2018, while 10-year traded around 2.68%. Oil retreated as mounting tensions in the Middle East over U.S.-Iran relations added to demand for haven assets. The unexpectedly weak U.S. economic numbers on the back of data pointing to slowing growth out of China heightened investors concerns that the trade war could weigh on a global economy that's already staggering. Adding to those woes is a growing sense of unease in the Middle East after a spat of attacks on oil assets ratcheted up an already tense relationship between America and Iran.
The US dollar advanced broadly while stocks took their first baby steps into positive territory after a pounding based on the Trade dispute between China and the U.S.. The market remained cautious after the tit for tat tariff game being played out within the global economies most important trade relationship. The negatives of even further U.S. tariffs being slapped on Chinese goods is being offset by the fact that the parties are still scheduling talks.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The JPY was the top performing currency this week while the GBP was the weakest. The USD also saw broad declines at various points during the week. USDCAD initially gapped higher from 1.3420 up to 1.3465 at the opening in response to the risk aversion flows / stock market sell-off from Trump's weekend tweet. He threatened to raise tariffs on $200 billion worth of Chinese goods from 10% up to 25%. He also mentioned that 25% tariffs on an additional $325 billion worth of goods could follow shortly. Reports suggest that the U.S. and China were close to a trade agreement when China retreated and wanted to re-negotiate. USDCAD climbed to 1.3495 before reversing course and falling to 1.3410 in early Tuesday trade. Equity markets had pared back significant losses during Monday's session while oil prices jumped 5% after initially falling 3%. The rest of the week remained volatile with large swings as reports of trade war escalation were offset with trade deal optimism as the Chinese trade Delegation made its way to Washington. The tariffs officially went into effect at 9:00pm Thursday night and global equity markets saw large declines in early Friday trade. Reports that some trade-deal progress was made saw markets pare earlier losses while the USD broadly declined. USDCAD had been testing the 1.3480 – 1.3505 resistance area for much of the week but declined to test the May lows near 1.3380 on Friday. Canada added a record number of jobs in April – 106,500 of which 73,000 were full-time. The unemployment rate declined further while wages gained. U.S. inflation data came in slightly weaker than expected. The move below 1.3400 did not last and USDCAD moved back to hold a 1.3415 – 1.3440 range for the balance of Friday's session.