Trump upsets global trade, eyes now on negotiation or retaliation

Good morning

It was a another calm day in the markets yesterday, we got a bit of USD weakness into the London close with GBPUSD up to 1.2970, an area that had pretty much capped the upside for the past couple of weeks, while EURUSD reached as high as 1.0870, again broadly around the last two week highs.  USDJPY bucked the weaker US move, pushing up 100 points from 149.15 to 150.15. 

And then Trump spoke.  I watched it and I have to say it was pretty painful.  The problem is, I can’t work out if Trump is right or wrong when he says trade with other countries is so unfair.  It is surely only reasonable to level the playing field.  But why do I have a sinking feeling about this?  It’s a massive gamble from Trump, one that if it pays off it would be great for the US, but it will be American consumers hit hardest by the higher prices in the short term and the positive effects, if they arise, won’t be seen for much longer. 

Mind you, some US firms are already looking to lure US customers.  Ford has apparently said they’ll offer their employee discount to all customers which should surely be enough to encourage buyers to purchase ‘American’.  That’s if they purchase at all of course.  Could be worth watching the success of this latest campaign by Ford as a litmus test for the ‘buy American’ idea.

USD is lower since Trump spoke despite the growing risk of US inflation and the potential for rates there to remain on hold for some time.  The fear of a slower US economy with higher inflation and higher interest rates is a very real concern.  GBPUSD is now 1.3100 which means 2025 has already seen a 10 big figure range and EURUSD is 1.0950.  These are the highest levels in both pairs since Oct 2024 and neither show any sign of stopping as yet. 

USDJPY is lower at 147.00, with the March lows around 146.60 not too far away as Yen is bought as a safe haven.  CHF is also higher against USD, now 0.8680 from 0.8850 yesterday.  Gold, another safe haven, saw a new record high of $3,167.

GBP has actually performed well since the tariff announcements, no surprise given UK was hit with a figure of 10%, considerably lower than many other countries.  GBP is up at 2.0815, 2.2750 against AUD and NZD.  AUD was hit particularly hard by Trump when he singled out their restrictions on US beef imports.  I see that their trade surplus released overnight was well down on expectations at AUD3bn against AUD5.6bn expected.

CAD has pushed higher against USD and is pretty stable now at 1.4180, while GBPCAD is only a touch higher than pre-Trump levels at 1.8605, demonstrating how well CAD has held after the tariff implementation.  No surprise given that both Mexico and Canada have avoided Trumps reciprocal tariff regime.

ZAR has been a big mover over the past couple of days, perhaps it is Trump tariffs or perhaps the mention of possible sanctions on countries who purchase Russian energy is to blame.  USDZAR is up at 19.00 while GBPZAR is up at 24.85, the highest we’ve seen since Jan 2016.    

One piece of news I feel very bad for not mentioning yesterday was the sad passing of Val Kilmer.  I know he’d been in many films but of course for me the main one was Topgun where he played Iceman, and I’m pleased he managed to make an appearance in the sequel, Topgun Maverick despite being pretty poorly at the time.  Still , other than Top Secret in the 80’s and Batman Forever in the 90’s I’m not sure I’ve seen many of his other films.  Perhaps that gives me something to work through, rather than a new box set.

In football, Liverpool beat Everton to extend their lead at the top of the table.  Ipswich caused an upset by beating Bournemouth and Villa had a comfortable win over Brighton to boost their chances of European football next year.   Next up, Spurs v Chelsea this evening, fair to say that neither team is really firing on all cylinders but at least Chelsea look like they are down a couple from what should be a V8, while Spurs are still spluttering along with a couple of cylinders at best.  Part of me thinks we’re capable but realistically I can’t say I am at all confident.  Chelsea could do with the points after both Man City and Newcastle won last night to knock Chelsea down into sixth place. 

US ISM PMIs are likely to be the highlight today, jobs data in the form of challenger cuts and initial claims are unlikely to offer any really insightful clues as to tomorrows nonfarms. 

Of course, the key now will be the global response to Trump’s tariffs, whether that is negotiation or retaliation.  EU have prepared countermeasures if negotiations fail, China have said they will retaliate if tariffs are not lifted.  Either way, it is unlikely we’ll see no action from those hit by increased tariffs.  Global trade will be hit, that’s for sure and global equities are lower as a result.  Its going to be a long and rocky ride and we could well be seeing changes that bring around a new era of trade relationships.

Have a great day…

-  09.00 EU composite PMI

-  10.00 EU PPI

-  11.00 ECBs Schnabel speaks

-  12.30 ECB minutes

-  12.30 US challenger job cuts

-  13.30 US initial jobless claims

-  14.45 US S&P composite PMI

-  15.00 US ISM services PMI