Trump Signs Tariffs, Uncertainty Still Lingers

Tariff Order Signed, Sealed and Delivered

This afternoon President Trump officially signed proclamations to impose a 25% tariff on steel imports and 10% duty on aluminum imports, to become effective in 15 days and on the basis of US economic security.  The absolute levels of the tariffs matched those which Trump had promised when he first unveiled the plan earlier this month, however the measure was not as broad-based as initially envisioned.  The proclamations specifically exempted Canada and Mexico from the tariffs in light of their importance as key trading partners with the US and the expectation of a more favorable renegotiation of the NAFTA, and they also provided significant “flexibility” for any US trade partner to present the case to the US to be excluded .  The global tariff tantrum still remains far from over, with the reactions from some of the largest trade partners such as China and the EU, whom had previously threatened a trade war, yet to play out. 

Stock and bond markets held within a tight range throughout the majority of the day as investors awaited the announcement from Trump.  Major stock indices saw a modest bump at the end of the session and finished 0.4%-0.5% higher.  US Treasurys rallied into the close, with yields/swap rates falling 1-3bps across the curve.  The US dollar responded favorably to the news, rising 0.6% against major currencies.  In commodities, crude oil futures extended yesterday’s selloff, as WTI crude tumbled 1.35% to $60.30/barrel – its lowest level in three weeks.   

Labor Data Before the Big Labor Data

An otherwise light day of key economic data releases did include a report from the Labor Department, which showed initial jobless claims in the US rising from the 45-year low recorded last week.  The number of new claims for the week ended March 3rd climbed 21,000 to a seasonally adjusted 231,000 (220,000 expected), and the four-week moving average of claims increased by 2,000 to 222,500.  Also detailed in the report, the number of continuing claims decreased by 64,000 to 1.87 million for the week ended February 24th.  Tomorrow the Labor Department will release its more comprehensive monthly employment report, where median forecasts point to a 200,000 nonfarm payroll addition and a 4.0% unemployment rate.     

Highlights of the ECB Meeting

The European Central Bank concluded its second policy meeting of the year with the decision to leave its existing asset purchasing program in place and hold its main interest rate at 0%.  The result was largely expected given the tepid inflation in the region, lack of progress in the Italian elections and uncertainty surrounding the future trade relationship with the US.  In the press conference afterwards, ECB President Mario Draghi also expressed concern over the potential for a reduction in financial crisis banking regulation in the US and the risks associated with such action.  Outside these more cautionary notes, Draghi delivered a message of improved economic growth in Europe – most notably seen in the ECB’s monetary-policy guidance statement, where language regarding the commitment to increase bond purchases if the economy were to weaken was removed.  The euro surged 0.6% immediately following the release of the text, but gave up those gains and more as Draghi spoke afterwards and addressed the key risks at hand.