Thursday was one of those days (and there have been a lot of them under this administration), that left traders scrambling to keep track of every potentially market moving headline.
Everyone already knew Trump was unlikely to extend tariff waivers but the official word still seemed to take folks off guard. The renewed protectionist push is a decidedly negative development that’s likely to impact NAFTA negotiations and also make it more difficult for Trump to marshal a unified front in his efforts to adopt a more aggressive approach towards Tehran.
European officials were out with myriad criticism of Trump (see second linked post above). Manfred Weber, leader of the Christian Democrats in the European Parliament had the following to say:
Europe does not want a trade conflict. But if @realDonaldTrump decides to treat Europe as an enemy, we will have no choice but to defend European industry, jobs & interests. We will not accept this highly regrettable decision without reacting. #trade #tariffs 1/2
— Manfred Weber (@ManfredWeber) May 31, 2018
This decision has to be a wake-up call for us Europeans: with the US closing in on itself, we should be bridge-builders & reliable partners for the rest of the world. Europe now has to act with a clear message and remain united, calm & proportionate. #tariffs #trade #Trump 2/2
— Manfred Weber (@ManfredWeber) May 31, 2018
Then, later in the session, this:
U.S. STEEL PARES GAIN AS CANADA IMPOSES STEEL SURTAXES
CANADA PROPOSING `DOLLAR-FOR-DOLLAR' RETALIATORY TARIFFS pic.twitter.com/X9NDEOwY1s— Heisenberg Report (@heisenbergrpt) May 31, 2018
Then a half hour later, this:
Trudeau Says Trump Would Only Talk Nafta With Sunset Clause
— Heisenberg Report (@heisenbergrpt) May 31, 2018
The Mexican peso was crushed as trade is all that matters. Weakest since February 2017:
Similarly tough day for the loonie which was also dented by a GDP miss:
Treasurys rallied some more amid the trade melee. 10Y yields lower by ~2bps. 5s30s and 2s10s flatter (latter flattest since 2007).
Obviously, U.S. equities suffered as trade tensions that everyone thought had abated are now back on the frontburner with the flame turned up:
The EIA data was bullish (crude -3,620k Bbl draw vs. est. +450k Bbl build), but WTI couldn’t hold the gains. As a reminder, crude snapped a week long losing streak on Wednesday.
In Spain, it looks like Rajoy is out and that, along with the drag from the tariff news, which hit late in the European session, tanked the IBEX:
More broadly, European stocks took a hit as soon as the headlines crossed. Here’s the move lower in the context of the past week (give or take):
Italy looks like it might be on the way to having a government after Five Star and League decided to make one more run at making it work, this time with a finance minister who isn’t named Paolo Savona but who is nevertheless a euro-skeptic. Italian equities closed slightly lower on the day after rallying early (like the broader European market, they were hit by the tariff news and the Spanish drama). Remember how folks were less worried about the effect of Russian sanctions than they were about Italian populism? This is from a week ago:
Fast forward to now and people are more worried about Italy than they are about Turkey:
We’ll see if Italian assets get any lasting relief from today’s news (which hit just as Europe closed), but as Goldman notes, “the gap between Italian bank bonds and the rest of the Euro area has widened meaningfully, especially in the USD market”:
The euro chopped around versus the dollar in a fruitless effort to reconcile all of the competing headlines with upbeat CPI data:
Oh, and this is interesting… today looks like it was the 28th day in a row of no flows in either direction for the iShares Core MSCI Emerging Markets ETF:
Day 27 of the The $IEMG Flow Drought… pic.twitter.com/ET9PHq89YG
— Eric Balchunas (@EricBalchunas) May 30, 2018
So was it all bad news on the international relations front? Well actually no. We’re getting along great with North Korea.
NEW: Sec. of State Mike Pompeo shakes hands with top North Korean official Kim Yong Chol ahead of meeting in New York to discuss potential U.S.-North Korea summit. https://t.co/7UApcrSz2e pic.twitter.com/EV9TIGMQM3
— ABC News (@ABC) May 31, 2018
In a nutshell:
The US government currently has a warmer relationship with North Korea than with Canada…pure surrealism.
— Five Minute Macro (@5_min_macro) May 31, 2018
Put Nancy in charge