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The U.S. fired the opening salvo on a trade war as it announced higher tariffs on aluminum and steel imports from Mexico, Canada, and the EU, and it looks like its trade allies have started to retaliate.

The Loonie lagged, despite a larger than expected draw in EIA stockpiles and upbeat Canadian monthly GDP, while the franc enjoyed safe-haven flows.

  • Canadian economy expanded by 0.3% in March vs. 0.2% forecast, 0.4% previous
  • U.S. core PCE price index up by another 0.2% vs. 0.1% expected
  • U.S. personal spending increased by 0.6% vs. 0.4% consensus
  • U.S. personal income rose by 0.3% as expected, 0.2% previous
  • Chicago PMI improved from 57.6 to 62.7 vs. 58.2 forecast
  • U.S. pending home sales sank 1.3% vs. estimated 0.6% gain
  • U.S. EIA crude oil inventories down by 3.6M barrels vs. 0.4M estimate
  • U.S. to impose 25% tariffs on steel imports, 10% on aluminum imports from EU, Mexico, and Canada
  • Mexico to impose measures on U.S. farm and industrial products
  • Canada to impose tariffs on $12.8 billion worth of U.S. exports
  • Giovanni Tria to be named Italy’s economic minister?
  • FOMC member Brainard: Uncertainty in Italy poses risks
  • Brainard: Gradual rate hikes appropriate, may rise beyond neutral
  • Australia AIG manufacturing index down from 58.3 to 57.5
  • New Zealand overseas trade index down by 1.9% vs. estimated 2.0% fall

Major Events/Reports:

Trade war shots fired

Trade war fears haunted the markets once more as the U.S. government fired the opening shot in announcing 25% tariffs on steel imports and 10% on aluminum imports from EU, Mexico, and Canada.

Of course its trade allies didn’t take this sitting down, with Mexico responding with measures on U.S. farm and industrial products and Canada planning on retaliating with higher tariffs on $12.8 billion worth of U.S. exports.

Finance Minister Bruno Le Maire failed in his attempt to negotiate with U.S. Commerce Secretary Wilbur Ross on Thursday, citing afterwards:

“It’s entirely up to U.S authorities whether they want to enter into a trade conflict with their biggest partner, Europe.”

Rumor has it that the EU will take measures against Harley Davidson motorcycles and bourbon, two products that could could strike a chord with Republicans. Meanwhile, word in Washington is that Trump also has plans to drive German auto makers out of U.S. soil completely. Time to buy that Porsche Panamera before it’s gone?

Wishful thinking aside, these moves would likely put further strain on ongoing trade negotiations (Yes, NAFTA talks are still ongoing.) and would bring a fresh round of uncertainty. U.S. equity indices were in the red:

  • Dow 30 index is down to 24,415.85 (-1.02%)
  • S&P 500 index is down to 2,705.27 (-0.69%)
  • Nasdaq is down to 7,442.12 (-0.27%)

Italy coalition sealed?

A bit more clarity was seen in Italy’s political situation as the 5-Star Movement and the League party are looking to name Giovanni Tria as the next economy minister.

Recall that this comes after President Matarella turned down their earlier pick, Paolo Savona,who was seen to be anti-euro. Economics professor Tria is seen to be a moderate economist and pro-euro, which was enough to soothe European markets and the shared currency for the time being.

In a joint statement, the parties announced:

“An accord has been reached for a Five Star-League government with Giuseppe Conte as Prime Minister.”

Conte assured that the solidified coalition will “will work with determination to improve the quality of life of all Italians.” His list of cabinet members are scheduled to be sworn in before the end of the week, and the coalition government will face a vote of confidence next week.

Major Market Mover(s):

CHF

With trade war jitters weighing on the dollar, it was the franc’s turn to take in the safe-haven flows, partly thanks to an improving political situation in Europe also.

GBP/CHF sank from 1.3151 to a low of 1.3061, CHF/JPY is up from 110.07 to a high of 110.51, USD/CHF is down to the .9850 area, and EUR/CHF dipped to a low of 1.1464.

CAD

The Loonie seemed worst-hit as the first few shots in a trade war were fired, dousing hopes that the BOC could be able to hike rates soon.

The Canadian currency also shrugged off stronger than expected March GDP as the quarterly read came in weaker than expected at 1.3% versus 1.8%.

CAD/JPY sank from 84.92 to a low of 83.56, USD/CAD popped up to a high of 1.2991, AUD/CAD is up to .9785, CAD/CHF tumbled to the .7600 mark, and NZD/CAD advanced to .9072.

EUR

The euro enjoyed another leg higher as Italian political parties were finally able to sign, seal, and deliver a coalition government.

EUR/USD rallied from 1.1645 to a high of 1.1707, EUR/JPY is up from 127.03 to 127.19, EUR/GBP popped back up to the .8800 handle, EUR/AUD pulled up to 1.5460, and EUR/CAD is up to a high of 1.5160.

Watch Out For:

  • 12:30 am GMT: Japanese final manufacturing PMI (no change from 52.5 estimate eyed)
  • Tentative: Australian HIA new home sales (previous 2.0% decline)
  • 1:45 am GMT: Chinese Caixin manufacturing PMI (rise from 51.1 to 51.3 expected)
  • 6:30 am GMT: Australian commodity prices y/y (previous 1.4% slump)