May 14, 2018

Markets Today: Trump blows hot and cold on tariffs

Trump seems to be offering a lifeline to Chinese telecoms company ZTE, whilst threatening car manufacturers with a 20 percent import tariff.

Today’s podcast


  • Trump (Sunday) backtracks on sanctions on China’s ZTE; should be seen as concession in trade negotiations…
  • … but Trump touts 20% tariffs on all auto imports
  • Limited moves across FX, equities and rates on Friday but VIX back on a ‘12’ handle
  • Big week ahead in Oz with Q1 WPI, April labour market, Debelle speaking  

We had a fairly subdued end to what has been a pretty eventful week characterised by additional oil market (and broader commodity price) strength linked to Donald Trump’s decision to pull out of the Iran nuclear deal, a failure of US CPI inflation to accelerate, an abrupt mid-week reversal of earlier USD strength and which meant AUD pulled back up comfortably above 0.75, and a positive week for risk sentiment – Trump’s Iran decision notwithstanding – that saw the VIX closing below 13 for the first time since 26th January.  For the AUD, Friday’s close around 0.7540 put it a pip or two above the previous Friday’s close. Few would have bet on it ending the week in the black after making a low of 0.7412 at mid-week.

The USD pulled up from its lows on Friday after a slightly better than expected University of Michigan consumer sentiment reading (unchanged at 98.8 against an expected fall to 98.3) but still ended Friday lower, while CAD suffered on a 1.1k fall in employment against an expected rise of 20k.  For equities, after two good ‘up’ days for US stocks and which had fed gains for APAC stocks on Friday, US indices meandered rather aimlessly to all finish little changed (S&P+0.1%). Health care was the best performing sector, on a view that President Trump’s plans to lower drugs prices would be a year or more in the regulatory making and won’t impact pharma profits for a long while yet.  On the week, all the main global indices are up, with the US leading the way with gains of between 2.3% and 2.7%, their best weekly showing since March and best closes since mid-March. The VIX ended Friday at 12.65.

 US Treasuries also had a relatively quiet session Friday with 10s trading with a 2.95-2.98% range and finishing 2bp up on Thursday’s close at 2.97%. On the week yields are slightly higher bar the ultra-long end which benefited from Thursday’s stellar 30-year auction. In the US money market, we continue to see compression in the spread between Libor and OIS (from around 60bps at its widest in early April to 47bps at 3 months). This has a direct read-through to the BBSW-OIS spread here in Australia. The Libor slippage does somewhat reduce the attraction of long-USD ‘carry’ trades, but whether this is a factor beyond the fall-back in the USD from the middle of last week is debatable.

In FX, most currencies were slightly higher against the dollar, SEK in particular which continues to recover from its April/early May pasting. The exception was the CAD which suffered on the weaker than expected employment reading; the bigger influence this week will be the progress or otherwise on NAFTA negotiations ahead of what US House speaker Paul Ryan said late last week is an end-of-week deadline for a deal if Congress is going to legislate something before the November mid-term elections.

The DXY USD index was down 0.1% on Friday and unchanged on the week. Friday’s latest CFTC/IMM data on futures positioning showed that net speculative short positions in the USD against other currencies are now barely a third of what they were at their recent peak, suggesting that the USD no longer has the tailwind from position unwinding that was almost certainly a factor behind recent strengthening (and related AUD weakness). CFTC AUD positioning data shows speculative net short positioning up to 17k contracts out from 6k the week before.

In commodities, it was a very mixed performance Friday, with iron ore (+1.5%) the standout winner while oil gave back a little of its mid-week gains linked to Trump’s decision to pull out of the Iran deal. Most other commodities were also slightly lower.  On the week, oil and all hard commodities are all up with Brent oil the standout, save for metallurgical coal, off 1%:

In other economic news China April lending and money supply data published on Friday evening  was a bit stronger than expected on the lending numbers (New Yuan Loans ¥1180.0bn and Aggregate Social Financing ¥1,560bn, both up on March) but M2 money supply growth only lifted to 8.3% from 8.2% against 8.5% expected.  We’ll get April’s activity data tomorrow.

The preliminary weekend auction clearance rate across the combined Australian capital cities was 61.0% down from last weekend’s final 62.1% (preliminary was 62.5%) on very slightly reduced auction volumes (2,245 vs. 2,311).  Sydney cleared a preliminary 62.5% vs. last weekend’s final 63.1% and Melbourne a preliminary 61.2% down from the final 63.7% last week.

 Coming up

  • US trade policy developments will be important (China, NAFTA and now the fresh threat to impose 20% tariffs on car imports, reported by the Wall Street Journal on Friday night). President Trump announced overnight on Twitter that he had instructed the Commerce Department to help ZTE, the second largest Chinese telecoms firm. The Commerce Department recently banned ZTE from sourcing key US components for its phones, putting the company on the verge of bankruptcy.  When US and China trade negotiators met earlier this month, the Chinese side demanded the US reverse these measures on ZTE, and the President’s decision to do so will be seen as a key concession in the negotiations.  Liu He, China’s vice-premier and economic advisor to President Xi, may visit the US this week to resume talks on trade and Trump’s announcement on ZTE should help support risk assets to start the week.
  • Data and events wise there’s nothing of note today save for several ECB speakers this evening.  It’s a big week in Australia with the Q1 WPI on Wednesday, employment Thursday and Guy Debelle speaking in Sydney tomorrow.
  • Internationally, the NZ Budget is on Thursday. China activity readings are tomorrow. The Eurozone (Tue) and Japan (Wed) publish Q1 GDP numbers, while the Senate will hold a confirmation hearing for Fed vice Chair nominees Rich Clarida on Wednesday.

Market prices

For further FX, Interest rate and Commodities information visit

The AUD in November 2023

The AUD in November 2023

1 December 2023

The AUD in November AUD/USD returned to ‘normal’ levels of monthly volatility in November.

The AUD in November 2023