TARIFFS: Trump Says China 'Played It Wrong' With Retaliatory Tariffs
The first response from US President Donald Trump to China's announcement of 34% retaliatory tariffs on US imports does little to downplay the prospect that he could escalate the burgeoning trade war further. Posting on Truth Social, Trump writes: "CHINA PLAYED IT WRONG, THEY PANICKED - THE ONE THING THEY CANNOT AFFORD TO DO!".
- The Chinese State Council Tariff Commission called the US actions "a typical unilateral bullying practice" (see 'TARIFFS: China Announces 34% Retaliatory Tariffs, Focus Turns To US Reaction', 1136BST).
- Political betting markets show broad expectations that Trump will not lower tariffs on China in April, with Polymarket data (from a relatively illiquid market) showing bettors assigning only a 35% chance that a deal will be reached to lower tariffs. Indeed in the wake of Trump's post the balance of probability may have shifted to the upside in that tariffs could rise further, or be applied to other sectors, rather than come down.
Chart 1. Political Betting Market Implied Probability, 'Will Trump Lower Tariffs On China In April?', %
Source: Polymarket
- In an earlier post, Trump claimed that "MY POLICIES WILL NEVER CHANGE", reinforcing the strand of thought noted in our US Daily Brief that the tariffs "are a pillar of long-term industrial policy," rather than, as some Congressional Republicans believe, "one lever in a negotiation towards more favourable trade terms."
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CANADA DATA: Canadian Labor Productivity in Q4 Shows Fastest Growth In A Year
- Canadian businesses Q4 labor productivity +0.6%, the highest in a year.
- For 2024, +0.6% after three years of decline.
- Business output doubled in Q4 +0.8% QOQ driven by service sector. Hours worked +0.2%, half the rate of Q3.
- YOY productivity in Q4 +0.8%.
SCHATZ TECHS: (M5) Gap Lower Highlights A Bearish Threat
- RES 4: 107.120 High Mar 4 and key resistance
- RES 3: 107.000 Round number resistance
- RES 2: 106.905 Intraday high
- RES 1: 106.735 Low Feb 19 and a recent breakout level
- PRICE: 106.730 @ 13:34 GMT Mar 5
- SUP 1: 106.685 Intraday low
- SUP 2: 106.644 123.6% retracement proj of the Feb 19 - Mar 4
- SUP 3: 106.600 Round number support
- SUP 4: 106.542 138.2% retracement proj of the Feb 19 - Mar 4
Schatz futures gapped lower today and the subsequent impulsive intraday sell-off, highlights a bear threat. The move down also undermines a recent bullish theme. The contract has breached a key support at 106.735, the Feb 19 low. Clearance of this level strengthens a bearish theme and signals scope for a deeper sell-off, towards 106.644 next, a Fibonacci retracement. Key short-term resistance has been defined at 107.120, the Mar 4 high.
ITALY DATA: Decent Upward Revision To Q4 GDP, GFCF Growth Solid
Italian Q4 GDP saw quite a notable upward revision to 0.14% Q/Q (to 2dp) from a -0.01% flash reading. This was likely a driving force behind the upward revision to the Eurozone-wide quarterly print (0.1% Q/Q vs 0.0% flash on a rounded basis) in the second release last month.
Looking at the expenditure-level details of the print, which are not available in the flash release:
- Consumption grew 0.2% Q/Q (vs 0.6% prior), contributing 0.11pp to the quarterly GDP print. However, January real retail sales (also released this morning) began the year on a soft note, falling 0.6% M/M SA.
- Government spending growth was 0.2% Q/Q (vs 0.3% prior), contributing 0.03pp to quarterly GDP.
- Gross fixed capital investment was the largest contributor to GDP (0.36pp to the quarterly reading), growing 1.6% Q/Q (the first positive sequential reading since Q4 2023). This was driven by “other buildings and structures” and “Machinery and equipment and weapon systems” components, with dwelling instead dragging.
- Net exports contributed 0.05pp, with export growth at -0.2% Q/Q and imports at -0.4% Q/Q. Export growth has been weak for some time, amid subdued conditions in major trading partners such as Germany.
- Inventory investment was a negative contributor, pulling quarterly growth down by 0.42pp.
