From Marc Chandler at Bannockburn Global Forex:
Overview: The US announced that the 25% steel and aluminum tariffs will not be effective for a month (March 12), and this gives the impression that they are a negotiating tactic, which may help explain why there has been a muted reaction. Some observers argue that the broader steel tariffs than in 2018 are meant to crackdown on the re-export of Chinese steel. Nevertheless, it will not set right with US allies. The most immediate threat to the stability of the G10 countries is not coming from China or Russia but the US. In his first term, Trump granted many exemptions to the steel and aluminum tariffs and Biden followed suit. It has yet to be seen what happens this time. The dollar is narrowly mixed against the G10 currencies today, +/- 0.15%. Among emerging market currencies, the Indian rupee sticks out with its 0.75% gain, on the back of suspected intervention. Most emerging market currencies are lower but a few from central Europe are a little firmer.
Equities are struggling today. Most for the large markets in the Asia Pacific region fell, led by a 1% loss in Hong Kong. South Korea, Taiwan, and Australia managed to post modest gains. Europe's Stoxx 600 is off fractionally, and US S&P 500 and Nasdaq futures are off 0.4%-0.6%. Bonds are also under pressure today. Benchmark yields in Europe are about five basis points higher, though UK Gilts are holding in better with a 2-3 bp increase, which is the same as the US. That puts the US 10-year Treasury yield around 4.52%. Gold set a new record a little below $2943 but has reversed low to test the $2900 area. We expect buying to emerge on the pullback. March WTI is higher for the third consecutive session. It its near $73.30 now after reaching $70.40 before the weekend. The next technical target is near $73.85.
USD: The US tariff threat provocations continue to dominate the mindshare of market participants. The US steel and aluminum tariffs are set to go into effect March 12. The month ostensibly allows time to negotiate but may help explain the muted market reaction. The potential supply shock that the tariffs represent alongside the economy that still is growing above trend will reinforce Fed Chair Powell's message semi-annual congressional testimony Wednesday and Thursday: Patience, which means in the current context, a reluctance to reduce the restrictiveness of monetary policy further after cutting the interest rate target by 100 bp in the last four months of 2024. Shortly before Powell testifies tomorrow, the January CPI will be reported. It looks to be largely steady on a year-over-year basis....
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