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From the Floor: Markets pause ahead of Powell testimony
27 February 2018 at 8:16 GMT
Video / 05 March 2018 at 8:32 GMT

From the Floor: US tariffs and Italy drag on sentiment – #SaxoStrats

  • Italian election and Trump's tariffs weigh on markets
  • US 10-yr treasury yields rose from 2.79% to 2.86% 
  • US 2-yr yields rose from 2.19% to 2.24%
  • Equities to tread water this week; tariff worries continue
  • China's response to Trump still muted but equities have fallen
  • Commodity focus: Tariff “war”, CERAWeek, WASDE and China 
  • Oil higher as Libya’s supply is cut by 1/3 after pipeline closure
  • Gold bounced strongly after hitting key support at $1300/oz 

By Clare MacCarthy

The week opens with a distinct taste of unease after the sentiment-boosting decision by Germany's SPD party at the weekend to join a coalition and give Angela Merkel a fourth term in office is now being offset by Italy's very murky elections. While the final result in Italy remains to be determined, the ruling centre-left has taken a bad beating, leaving the future government in the hands of either Silvio Berlusconi's centre-right bloc or the populist Five Star movement. 

Of these two prospects, it is the latter that would be the worst for markets, says Peter Garnry, Saxo's head of equity strategy. "In the worst case, a Five Star administration could slow down the European banking union," he says.

And where to hide from tariffs and Italy? "The slowdown in economic activity combined with prospects of a trade war have seen little clarity. Cyclicals have done marginally worse while thge technology sector and Asia have done well ," notes Garnry.

But overall, the big theme for equity markets this week is that "we'll tread water, with sentiment still affected by Trump's threatened trade war", says Garnry. These worries have pushed Asia equity markets down around 1% though it should be noted that China's reaction to the tariffs has so far been muted.

Meanwhile, it'll be "quite an interesting week in the commodities space with a lot of themes unfolding," says Ole Hansen, Saxo's head of commodity strategy, with the US trade tariff war, CERAWeek, WASDE and China all vying for attention. More immediately, though, oil is starting the week higher after extremely low temperatures forced Libya to shut a major pipeline, cutting the country's supply by one-third. However, the price rise is being partly offset  by continued stock market weakness and a stronger dollar on tariff worries. 

Industrial metals will focus on China as the elite meets for two weeks to set annual targets while grains may pause ahead of Thursday’s WASDE report.

The murky outcome of the Italian election is damaging sentiment. 
Pic: Walter Cicchetti /
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