Another day, another White House resignation and markets go topsy-turvy all over again. The resignation of Gary Cohn, President Trump's top economic adviser, removes "the last bulwark for free trade in the White House" and increases the likelihood of an all-out trade war between the US on one side and virtually the whole world on the other.
"This really raises the temperature," says John Hardy, Saxo Bank's head of FX strategy; "the administration is reported to be readying a broad range of tariffs on imports from China." And how should traders and investors respond to these threats? "We really need to stay on our toes, be careful and potentially consider options and options spreads as a way to trade developments," is Hardy's advice.
As has been seen since the tariffs first raised their ugly head last week, the Canadian dollar is taking the brunt of the heat. "The protectionism from Trump and all the noise about NAFTA are not very supportive at all and we have CADJPY, the poster child of opposing directional developments with both currencies repricing in opposite directions," Hardy says.
However, though we've seen the Canadian dollar absorb a lot of negativity, the rate outlook from the Bank of Canada hasn't fallen much, says Hardy, adding that he expects the central bank to be very cautious and their next policy meeting.
What's going to happen next? Hardy says that we should watch out for ad hoc headlines upsetting markets and Peter Garnry, Saxo's head of equity strategy, says the next battle will likely be specifically China-focused.
"Right now we're waiting for the tariffs to be enacted and then for the response from the EU and China," says Saxo's equities head. After that will be intellectual property rights – IP theft. "A report from the US Trade Representative’s office is expected soon. The report is likely to hand Trump more ammunition for more tariffs directed against China," Garnry says.
For equity markets this means that sideways is the prevailing direction for Q1 and Q2 though there will be opportunities for active investors, and technology is a good place to start looking as this sector is more robust that physical goods.
Finally, oil is trading lower after API reported a bigger-than-expected stock build and weaker stocks following Gary Cohn’s resignation, reports Ole Hansen, Saxo's head of commodity strategy.
As well as the looming trade war, the oil market's focus is on #CERAWeek in Houston and EIA’s weekly inventory report at 15:30 GMT today. And gold is being supported by the risk of a trade war but struggling after finding resistance at $1340/oz (61.8% of the February selloff).
"We maintain a bullish view based on gold's diversification credentials," Hansen says.
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.