Cohn was no lynchpin
It's been a flip-floppy week and ultimately, for markets, that's healthy. Investors are alert; more reactive; habituating to increased volatility. Hence we’re not convinced the knee-jerk sell-off on news of White House chief economic advisor Gary Cohn was enough in itself to trigger sustained gyrations. The 400-point Dow futures slide last night suggests he was a lynchpin tethering Trumpian tendencies to something recognisably market-aware. But Cohn's star has been on the wane for many months. None too hidden divergence was evident from the president's presumed stance on everything from globalisation, Charlottesville, and yes, tariffs. Being passed over as a FRB appointee made Cohn's departure an exit waiting to happen all the more. It finally happening after the cancellation of a meeting Cohn arranged between Trump and U.S. and heavy corporate users of steel and aluminium is consistent in the context we suspect, and makes less sense on its own.
Dollar fade is patchy
To be sure, the incoherence of The White House’s tariff push accounts for a large part of this week’s reversal. Consumers as well as industries would be in the firing line from retaliation and other impacts, including an even bigger budget deficit. Hence the dollar’s fade all the way back to the verge of Friday’s 16-month lows against the yen. Some of that move may be anticipating Fed-predicated pressure; the possibility that monetary policy could adjust should international trade fallout bring clear and present danger. Again, the threshold for a Fed deviation from its exit strategy will be high and a long-time coming. Something similar could be said about the Bank of Canada, which will announce policy on Wednesday, though the dollar retaking half of this week’s CAD gains points to worry that BoC could reference North American trade matters in dovish commentary. The mixed dollar complex is completed by 10-year Treasurys yields continuing to hover near 2.85% support. In other words, government debt buyers aren’t pricing anything definitive so far.
Labour data returns to the fore
Uncertainty, the market’s chief enemy is real enough. Pro-tariff trade advisor Peter Navarro is about to embark on several further weeks of NAFTA negotiations before an eighth round in April. Recent Trump comments linking tariff announcements to talks and a potential lighter regime for NAFTA members point in multiple directions, and hence none. Macroeconomic aspects that are easier to get a handle on are likely to come back to the forefront of market attention in coming days, bringing their own threats. Chiefly, if wage readings in Friday’s U.S. employment report overshoot again (monthly earnings growth is forecast to tick lower) a repeat performance of February’s volatility has more than fair probability. The problematic ADP curtain raiser will come out at 1.15pm GMT on Wednesday. Unreliability has discounted the importance of ADP’s survey, though in the wake of poor job updates in Tuesday’s service-sector ISM release, a shortfall versus ADP consensus of 195,000 could fuel further minor volatility.
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