ON DECK FOR TUESDAY, APRIL 1
KEY POINTS:
- Trump resigns, blames Melania for tariffs
- Markets continue to see-saw on volatile Trump remarks
- USTR report lists alleged trade barriers by country…
- ...and if length is a guide, then the EU and China are the main targets...
- ...but here’s why you should seek no comfort in its findings on Canada
- RBA held as expected
- Eurozone core CPI softens more than expected, but services still warm
- US ISM-manufacturing: watch tariff anecdotes and prices
- US JOLTS vacancies to tease ahead of Friday’s payrolls
- US vehicle sales probably jumped higher
Trump resigned this morning, saying that tariffs were all Melania’s idea.
Pranks aside, market volatility continues on the eve of Tariff Day. Today they are in a somewhat better place. Tomorrow, we’ll see. US equity futures are mildly in the red while Europe’s exchanges are rallying by up to about 1%. Sovereign bonds are richer with Europe outperforming. The yen and CHF are among the leading crosses. Why?
WHICH TRUMP SHOULD MARKETS BELIEVE?
Volatile talk from Trump and his advisers dialed back some of the tariff rhetoric last evening into this morning after his aggressive remarks on Sunday when he threatened high universal tariffs. Trump said we could see tariffs “maybe tomorrow night or probably Wednesday,” so be on guard this evening and throughout today’s rumour mill. He also said tariffs will be reciprocal but “we’re going to be very nice, relatively speaking, we’re going to be very kind.” Kind, you know, like a knife slicing through global trade.
This morning we have a Reuters piece saying that pharma tariffs are unlikely to be included tomorrow. That’s among the most ridiculous tariffs to begin with. He also said he would reverse pollution curbs on autos by five years back to 2020 standards and somehow dirtier air is a positive.
So key is whether markets should believe Trump and on April Fool’s Day no less. Which Trump should be believed is the first question. Should it be Sunday Trump? Or last night’s Trump? Another day’s version perhaps? Or his advisers?
USTR’S REPORT ON TRADE BARRIERS
The USTR’s report on Foreign Trade Barriers was released last night and is here. It’s only about 400 pages, so I’m sure you’ll enjoy the light reading.
Canada is on pages 40–45. Six pages. If length is any indication, then the European Union at 34 pages, China at 48 pages and India at 16 should, in theory, suggest they have more to be concerned about. The UK is also light at five pages. Japan is at 11.
That may be small comfort in light of the fact that in some parallel universe and in Trump’s mind, Canada has done great misdeeds to the US and attracted a disproportionate amount of his rage. He would not have the folks at the USTR onside if Trump hits Canada hard with tariffs. Their report doesn’t justify tariffs to date.
As indications of this latter point a caution lies in the fact that Trump is pursuing auto tariffs, yet the USTR doesn’t even mention autos as an issue in Canada. Ditto for lumber. Ditto for steel and aluminum. Ditto for pharmaceuticals. Trump has his own goals that are separate from what the USTR is fingering as trade irritants.
There are extremely contentious parts of the report but some things that have been rumoured to be concerns are absent. Some of the environmental and food safety “barriers” would be viewed by others as sensible and within a country’s right to regulate.
Supply management is the first barrier that is listed. PM Carney has said that's untouchable. And Canada would push back strongly, given the hypocrisy surrounding the hundreds of billions spent annually by the highly distorting US Farm Bill that subsidizes corporate farms. And recall that the dairy tariffs thing is a ruse as shown in charts 1–3. US exporters come nowhere close to hitting the quotas above which tariffs apply. And the US does the same thing to Canada in the CUSMA/USMCA deal. The problem facing US dairy producers is that they're not export-oriented enough but like to whine a lot.
Provincially run liquor control boards are another example and bound to see the provinces dig in. This is an issue that hits domestic consumers, while generating massive revenues for the governments.
Legislation to achieve zero plastic waste by 2030 is another. Apparently they're horrified that Canada doesn't want oceans full of plastic. The horrors!
Quebec's Bill 96 is another one and that’s the french language law. Buzz off, regardless of opinions on this within my country, you’re butting into domestic politics and it’s our business. This country has two official languages and a rich variety of other spoken languages in a highly diverse population. Your country pretends that it only has one spoken language.
The Digital Services Tax is there and is no surprise. France has one too. The idea behind it is to make US tech firms pay their taxes on services delivered in Canada like everyone else and using Canadian content. The tech bros don’t like paying their taxes.
There is no mention of the GST/HST or VATs in the cases of Canada and Europe. That's also one of the nutty claims by some in the US that it's a trade barrier, but it's not in the USTR report.
What this all means to tomorrow's trade announcements is unclear. If that's it, then in theory, Canada shouldn't have much to worry about relative to Trump's nonsense. Clearly, that’s not it relative to the rhetoric.
RBA HELD AS EXPECTED, EMPHASIZED UNCERTAINTY
The RBA held at 4.1% as widely expected. The accompanying messaging was peppered with a variety of uncertainties that left the A$ and Australian rates curve little changed in the aftermath.
EUROZONE CORE CPI SOFTENS
Eurozone core CPI was a bit softer than expected but still warm. The year-over-year rate ebbed to 2.4% (2.6% prior, 2.5% consensus). Key, however, is that the m/m NSA rate of 1.0% was slightly cooler than the historical average for like months of March (1.1%). Chart 4. By contrast, however, services CPI was up by 0.4% m/m NSA which is a little warmer than the average for like months of March (0.27%). Chart 5.
US DATA ON TAP
For US ISM-manufacturing (10amET), the anecdotes around supply chain challenges and the inflation components may be the most relevant. US vehicle sales (end of day) are expected to jump based on industry guidance (Consensus 16.2 million, Scotia 16.5, prior 16.0).
And JOLTS arrives (10amET). Markets often react, even though it lags. Even though often times you can't tell if the change in openings was because they were filled, cancelled, or increased. Like most other advance labour market readings, JOLTS isn't terribly helpful to a nonfarm call.
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