American FX Outlook: Trade War Between World Economic Superpowers Has Begun

What you need to know before markets open

• The move of the White House announcing 25 percent tariffs on imports from China targeting goods worth of $50 billion overnight triggered a retaliatory action with China imposing 25 percent tariffs on the import of cars and aircrafts from the US.
• The construction industry in the UK contracted unexpectedly sharply in March with construction PMI falling to 47.0, well below the neutral 50 points mark.
• Global equity markets are trading lower with futures for the US equity gauges turning sharply lower after the tariffs retaliation from China as trade wars began.
• There are Fed policymakers scheduled to speak on Wednesday, but the major macro news is the ADP private labor market report that is forerunning government’s Non-Farm Payroll report due this Friday and the services PMI from ISM.

Wednesday’s market moving events

• The US ADP private employment report is expected to deliver 208K new jobs added in March.
• St. Louis Federal Reserve Bank President James Bullard is scheduled to speak at the Arkansas Bankers Association in Little Rock, Arkansas at 13:45 GMT.
• ISM non-manufacturing PMI is expected to decelerate slightly to 59.0 in March. For further details read my Preview here.
• Federal Reserve Bank of Cleveland President Loretta Mester is scheduled to deliver a keynote speech on diversity in economics at the Central State University, in Wilberforce, Ohio at 15:00 GMT.

Major market movers

• The US Dollar was initially boosted on Wednesday but fell across the board after China said it will impose further tariffs on US imports in a sign of real trade wars beginning.
• With trade wars between the world’s two largest economies, the risk-off market sentiment is likely to dominate benefitting safe havens.
• The US Dollar is in focus with the ADP employment report on Wednesday considered forerunner of Friday’s Non-Farm report from the US Labor Department.

Earlier in Asia/Europe

• Australian retail sales rose 0.6 percent m/m in February.
• China’s services PMI decelerated to 52.4 in March from 54.2 in February.
• Italian unemployment fell to 10.9 percent in February.
• The UK construction PMI decelerated unexpectedly sharply falling to 47.0 in March indicating economic contraction of the industry.
• China said it will impose trade tariffs on imported cars, chemicals, soya and aircraft from the US in an effort to fight back the move from White House announced overnight.
• The Eurozone unemployment fell to 8.5 percent in February.
• The Eurozone flash CPI increased 1.4 percent y/y in March with core CPI rose 1.0 percent y/y, unchanged from February level.