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Fears of trade wars stalk the markets

Published: Friday 16 March 2018

  • Sterling continues to recover
  • Fears of trade wars stalk the markets
  • US data dominates
​​By David Johnson

The UK-Russia situation escalates…
The US, Germany and France have joined the UK in condemning Russia for the chemical weapon attack in Salisbury. The Russians are putting on their most innocent faces as they sign orders to expel UK diplomats and the fear is that this could escalate into a trade war. If Russia turns off the gas pipelines to the UK, does the UK government seize Russian assets in the UK? Or Knightsbridge, as it is better known… Where does it end?
Global concerns about trade tariffs
All this talk of US tariffs and other forms of protectionism has worried the Swiss. The Swiss Franc has often been seen as a safe haven during trade disputes and that has caused the Swiss National Bank problems in the past; making it harder for Swiss exporters and banks and artificially lowering inflation.
A potential trade war with America has also worried the German trade ministry. In a statement of the flaming obvious, the Economy Ministry said, “U.S. trade policy is creating a sense of uncertainty”. Oh yes it is; and it is meant to cause uncertainty. 
US Dollar drops again
The US Dollar remains rather weak at just below $1.40 against the Pound and around $1.23 against the Euro. Sterling is holding up well and has regained a lot of its recent losses, but the Sterling based exchange rates are tending to trade in rather narrow channels and that reduces the opportunity for gains, but it also minimises losses. So, there is a silver lining to a quiet market. Beware, though, quiet markets tend to increase pent up demand and the breakout – when it comes – is likely to be explosive. A lack of UK data today should adjourn that explosion though. 
The big data today comes from the US. Industrial and manufacturing production data and capacity utilisation figures should keep the USD lively. Overall, that data is expected to be rather upbeat, so some USD strength wouldn’t be at all surprising in later trade.
A week to watch ahead
Next week’s UK data diary is mahoosive, though. Inflation, unemployment, wages, the Bank of England (BoE) interest rate decision and statement, retail sales data… it’s an all singing and all dancing five day data splurge. So, whatever the Pound does today is as nothing compared to the likely volatility next week.
It’s raining precious metals!
And in a perfect example of mixed emotions, a plane carrying $265 million worth of Gold, Silver, Platinum and Diamonds had a malfunction in Russia yesterday. The door opened and 170 gold bars fell out. The mixed emotion is that it would be dangerous to be under that, but it could have been so good to be under that! They were probably laced with chemical warfare agents, though, so best steer clear.
At the Doctor’s Surgery

A man walks into the Doctor’s surgery with a gherkin up his nose, a cheese sandwich in his left ear and a sausage roll in his right ear. He says, “I don’t feel well Doc, what is wrong with me?”
“It’s quite obvious,” says the Doctor. “You’re not eating properly.”

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 10:00 EU: Final Consumer Price Index 1.2% 1.2%
EUR 10:00 EU: Final Core Consumer Price Index 1.0% 1.0%
CAD 12:30 Canada: Manufacturing Sales -0.3% -0.8%
CAD 12:30 Canada: Foreign Securities Purchases -1.97b 9.11b
USD 12:30 US: Building Permits 1.38m 1.32m
USD 12:30 US: Housing Starts 1.33m 1.29m
USD 13:15 US: Capacity Utilization rate 77.5% 77.7%
USD 13:15 US: Industrial Production -0.1% 0.3%

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