Daily Market Color

Tariff Exemptions Remain in Focus


Allies and Enemies

The intended and unintended consequences of President Trump’s recently announced steel and aluminum import tariffs remain one of the most actively debated topics in financial markets to open the week.  With the right for any country to apply for an exemption from the duties within the next 10 days, the proclamation has initiated unique trading debates and potential strategies for many of our trading partners…

  • Canada and Mexico: while our North American counterparts were labeled initially exempt from the measure, the ultimate outcome will be dependent on the restructuring of NAFTA – negotiations which have not resulted in conclusive results to date.
  • European Union: EU Competition Commissioner Margrethe Vestager confirmed that if the tariffs are imposed on Europe (i.e. if the EU is not exempt), countermeasures would be put in place.  Of particular sensitivity related to trade with the EU, the automobile industry may become more embroiled in the tariff saga, as companies such as Volkswagen AG, BMW AG and Daimler AG all host factories in the US.
  • China: while the direct impact of the steel and aluminum tariffs on China will play out in the coming months, Trump also foreshadowed a series of additional taxes applicable to China in relation to investment restrictions (largely targeting intellectual property theft) — measures for which China’s foreign minister Wang Yi has promised a “a justified and necessary response”
  • Japan: Trade Commissioner Hiroshige Seko labeled the tariffs “regrettable”, however a mutually satisfactory resolution seems much more likely given President Trump’s relationship with Japanese Prime Minister Shinzo Abe.  “It will all work out,” President Trump tweeted over the weekend in reference to the trade relationship with Japan.



All three major US stock indices held within a tight range throughout the day with little by the way of key economic data releases or market-moving political updates.  The DJIA (-0.60%) and S&P 500 (-0.15%) finished in the red, while the Nasdaq (+0.35%) posted a marginal gain.  US Treasurys were similarly rangebound, as yields/swap rates were +/- 1-3bps across the curve.  Tomorrow’s release of February’s inflation data will be closely monitored by bond market participants, where a 0.2% rise in the Labor Department’s consumer price index is expected, which would yield a 2.2% YoY advance.  In commodities, crude oil futures gave back a portion of last week’s gains, as WTI crude declined 1.2% to $61.30/barrel.  The US dollar edged lower amid the tariff limbo, falling 0.2% against major currencies.      



Dodd-Frank Rollback Delayed

In regulatory news, the Senate has delayed its final vote on the Dodd-Frank rollback amendment to next week. The proposed bill is said to have more than 100 amendments and it was not clear that it would receive enough bipartisan support.  As a result, the Senate is expected to vote on a series of amendments next week.  Both parties are still arguing whether these rollbacks could result in another financial crisis with the Democrats submitting several modifications that would limit the number of banks that would benefit from the bill.  Additionally, Jeb Hensarling and other House Republicans are requesting more input on the bill, looking for more reconciliation with the previously proposed House Bill.  It is anticipated that compromises from both parties will be worked out this week enabling the bill to move forward.

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