TARIFFS: 3-Tier Plan Returns, Without A "No Tariff" Band
Apr-02 17:17
The 3-tiered US tariff plan that may be be announced today - as reported by Sky News, citing a White House source - has been mentioned before.
- The Wall Street Journal on March 18 suggested that this idea had been discussed among senior officials, but it seemed to have been abandoned, with a country-by-country approach preferred.
- Notably, the WSJ piece also reported that no matter what was decided, it was expected that VAT would be taken into account as a tariff to be reciprocated by the US - and also, there was attention paid to the fact there wasn't a tier for "zero" tariffs, consistent with theh Sky story (which pointed to 10/15/20% bands). Recall that the WSJ story at the time triggered a strong risk-off reaction.
- If it turns out that the administration adopts the 3-tier plan, it may simply be the case that they ran out of time to come up with a more targeted plan ahead of the deadline. This was the WSJ on March 18:
- "The simplified three-tier tariff proposal -- with low, medium and high rates -- was discussed on Thursday [March 13] at a meeting featuring the likes of chief of staff Susie Wiles, Commerce Secretary Howard Lutnick, Treasury Secretary Scott Bessent, U.S. Trade Representative Jamieson Greer, deputy chief of staff for policy Stephen Miller, Office of Management and Budget Director Russ Vought, and Senior Counselor for Trade and Manufacturing Peter Navarro."
- "Officials discussed several proposals, including the three-tier approach. But on Friday when officials huddled on the plan again, the tiered proposal was ruled out, the administration official said, in favor of an individualized approach. How to determine that tariff rate is the subject of debate and discussion among the team now, the official said. ... Officials are weighing how to move forward without overwhelming the U.S. Trade Representative's office, an agency of more than 200 people charged with devising the reciprocal tariff plan. The Wall Street Journal previously reported that imposing reciprocal tariffs unique to each trading partner's duties and non-tariff barriers could take six months or more."
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FOREX: EURUSD Approaching Significant Cluster of Resistance
Mar-03 17:17
- Data today has supported both legs of the bullish EURUSD trade. Eurozone flash readings of CPI and core CPI coming in a tenth above consensus estimates boosted an already buoyant Euro, and the more constructive price action for European equities exacerbated the risk-on momentum. Furthermore, weaker growth/employment metrics in the US ISM manufacturing survey have added to the positive sentiment for EURUSD.
- Today’s 1.15% advance has swiftly erased the majority of the three session decline seen late last week, and in the process we are flirting once again with the 1.05 handle. This leaves spot just 30 pips away from a cluster of resistance, a collection of daily highs between 1.0520/33 which will provide the key focus ahead.
- A clear break of 1.0533 (Jan 27 high) would highlight an important technical break and provide the foundation for a stronger bullish short-term theme, opening 1.0630, the Dec 6 high.
- Given the significance of this area, options markets may be underestimating the potential range for EURUSD this week, especially considering we have ongoing tariff developments, discussions on Russia/Ukraine, the ECB meeting and US employment data. Pricing for a EURUSD straddle expiring on Friday incorporates a move of just +/- 85 pips from current spot levels.
ECB: Weekly ECB Speak Wrap (Feb 25 – Mar 3)
Mar-03 17:12
In the following publication, we provide a summary of ECB speak between February 25 and March 3: 250303 - Weekly ECB Speak Wrap.pdf
The final week of ECB speak before the March 6 decision did not bring too many surprises, with Schnabel and Nagel’s hawkish communique balanced by the characteristically dovish Stournaras. A 25bp March cut is unanimously expected and essentially fully priced in ECB-dated OIS, leaving focus on the policy statement guidance and updated macroeconomic projections. MNI’s ECB preview will be released tomorrow.
- The MNI Policy Team’s pre-meeting sources piece helped separate the signal from noise ahead of Thursday’s decision. While the bank’s inflation projections are likely to be revised a little higher, this is seen as a temporary blip. Meanwhile, hawkish officials are already pushing to remove a reference to policy being at restrictive levels from the ECB’s statement, though dovish resistance could limit the change to a mention of the need to closely monitor the degree of restriction.
- Schnabel argued that the ECB’s balance sheet run-off would contribute to a higher neutral rate of interest, which underscores her view that “we can no longer say with confidence that our policy is restrictive”. These comments were broadly consistent with her hawkish FT interview the week before last.
- Meanwhile, Kazaks (speaking on monetary policy for the first time since prior to the January decision) argued that the direction for monetary policy is “still clear” – a sentiment shared by Stournaras.
- In an interview with the MNI Policy Team, Bank of Cyprus Governor Patsalides provided a pragmatic outlook for policy, noting that “while our policy remains restrictive at this stage, going forward the appropriate degree of restrictiveness is continuously reassessed based on evolving economic conditions at each meeting”.
- The ECB’s January accounts were also released last week. For a summary, see here, here and here.
- Last week’s dovish repricing in ECB-dated OIS has largely been unwound today, with long-end yields pushed higher amid prospects of increased Eurozone (especially German) defence spending.
US 10YR FUTURE TECHS: (M5) Trend Structure Remains Bullish
Mar-03 17:10
- RES 4: 112-09+ 2.0% 10-dma envelope
- RES 3: 112-02 1.382 proj of the Jan 13 - Feb 7 - Feb 12 price swing
- RES 2: 111-22+ High Dec 3 ‘24 and a key resistance
- RES 1: 111-13 High Dec 10 & Mar 3
- PRICE: 111-10 @ 16:52 GMT Mar 3
- SUP 1: 110-00 High Feb 7 and a recent breakout point
- SUP 2: 109-16+ 50-day EMA and a key near-term support
- SUP 3: 108-21 Low Feb 19
- SUP 4: 108-03+ Low Dec 12 and a bear trigger
A bullish cycle in Treasury futures remains in play, with fresh highs posted on Monday. The contract is building on last week’s gains, with accelerating on the break of 110-20, the 76.4% retracement of the Dec 3 - Jan 13 bear leg. Clearance of this level strengthens the recovery and signals scope for a climb towards the 111-22+, the Dec 3 ‘24 high and a key resistance. Initial firm support to monitor is 109-16+, the 50-day EMA.
