Market News & Insights
7 March 2018

Cohn, Cohn, Gone!

The revolving door of the Trump presidency has seen yet another departure but this time it’s one the markets have stepped up and taken notice of. International financier and the US administration’s top economic advisor Gary Cohn has resigned, making his opposition clear to the steel and aluminum tariffs that President Trump plans to enforce. Cohn may be just another number in a very long list of departures in the last year but from the global markets perspective he was one of the most highly respected representatives that had Trumps’ ear, a vocal free trade advocate, his resignation now signals to markets that the trade war battles may only be just beginning. If anything from this point forward, trade policy will become even more uncertain as those economic advisors remaining in the US administration are primarily those with protectionist views.

We spoke yesterday that markets had begun to return to normal with major indices pressing higher on the assumption that there would be some pull back on Trumps’ aggressive stance, however Cohn’s departure could well be the beginning of something far larger and markets did not like it. Overnight the USD dropped back lower, the USD index is now back almost 1.65% since Trump first announced his tariff plans and falling in US bonds is seeing value drop from the greenback. Elsewhere in currency markets USDJPY dropped as risk aversion took over and the safe have yen was favoured by investors, while the euro was also an outperformer in moves, the single currency supported by an ECB backstop. This morning I’m seeing a sea of red across European indices and US futures are also pointed lower following a weak session over night that saw major Asian bourses down between .75% and 1.03%.

I think it goes without saying that further detail on US policy in relation to trade will carry a heavy bearing on market direction but we’ll take a look at other upcoming data points that may well add some intraday movement. The final print for Eurozone GDP for Q4 will headline this morning’s releases but we’ve already seen three assessments and the final one is unlikely to shift too much from the 2.7%. Tomorrow’s ECB meeting is what it’s all about and while no change is expected, markets will have a keen ear for anything that could be construed as guidance on policy. Any talk about an end date for QE or the potential for raising interest rates in 2019 will almost certainly favour the euro rallying higher. However, given the raising concerns on trade wars and protectionism, one would have to wonder how strong the ECB would like to see the euro get. And although trade wars are not quite in their remit, the ongoing price stability of the single currency is. Any indication of rates staying low for longer, any concerns on inflation slowing (which would be against their recent rhetoric), or any suggestion QE will continue into year end and the euro sellers will re-emerge.

Stateside and the ADP employment report will provide some indication in bias into Friday’s Non-Farm payrolls. The ADP is expected to show 200k jobs added to the economy, while Friday’s NFP is guided at 205k jobs and while the lack of correlation between the two prints still leaves plenty of room for a big difference in figures, the ADP tends to set the broader tone for NFP. Anything from 150k to 250k however is unlikely to see too much of a major shift in market dynamics and the real important figure from Friday’s release will still be wage growth, rather than the headline figure. US trade balance data and the Fed’s beige book of economic activity is also due for release today and should shed some light on the broader US economy. However, the real movement may well come from a number of Fed speakers we have today, with Dudley and Bostic both due across the wires.