Tariff Man boosts the buck, slams stocks

US President Trump declared himself a “Tariff Man”, touting the efficacy of tariffs yesterday. In reply, the markets voted with a loud thumbs down, scotching the entire post-G20 rally and then some on weakening confidence that this loose cannon of a president can cobble together a coherent or stable trade deal with China. For its part, China took exception to some of the uncertainty on whether anything at all was agreed at the G20 by trying to reassure that it will push on with trade negotiations. Interesting that this reassurance provided very little support overnight.

In the wake of yesterday’s developments, we are left with a much stronger US dollar, decimated risk appetite and lower US yields all along the curve, with a powerful yield curve flattening garnering increase attention as long US yields drop and look to have posted a major reversal. The Japanese yen did play a safe haven role yesterday, cutting a swath of strength across the G10 yesterday before fading a bit overnight. 

Today, US markets are closed to honor former President George H. W. Bush’s passing. 

A pivotal day for the UK yesterday. Early in the session, sterling rallied steeply from close to recent lows after an EU court advisory body indicated that the UK could pull out of Brexit unilaterally, effectively meaning that the UK-EU relationship could revert to pre-referendum status quo. But later, the sterling rally reversed as Prime Minister May was found in contempt by parliament for withholding information, and in another vote, parliament established that it will now have more control over the Brexit endgame if May’s deal heads toward what looks an inevitable rejection next Tuesday. 

We have a Bank of Canada meeting on tap, but expectations are minimal for a rate move this time around and there is no press conference at this meeting. The choppy USDCAD has reversed course once again and is looking back toward the range highs just south of 1.3400.

Chart: GBPUSD

Cable has been teetering on the brink here after May’s no-good, very bad day yesterday, a day in which parliament found May in contempt and will have far more leeway than previously in controlling the Brexit endgame. A close below the prior low potentially opens up the range to 1.2000, although GBP will remain vulnerable to headlines of either stripe at all times, as yesterday made rather clear, and traders are likely reluctant to commit to trades outside of the options market, fearing the choppy conditions from day to day.