Market Morning - Tariffs, Trump and Payrolls

In a breakthrough move Donald Trump and South Korea have announced that talks will take place with Kim Jong Un to discuss the denuclearisation of North Korea. This was announced just after the President announced the tariffs he is imposing, which do give exemption to Canada and Mexico, which was rumored. There are still negotiations over the tariffs and other possible exemptions, so as normal everything is still pretty unclear.

I’m surprised we haven’t seen more of a market reaction to the North Korean story, with stocks finishing higher but without any real clear direction. This could well have been offset by the tariff news as the announcement has bought widespread condemnation from all quarters. The feeling is that, with the President looking to shift on tariffs if nations produce reciprocal tax changes, there could be a lot on uncertainty as to how well this will work, and with talks of retaliatory tariffs from Europe this could get uglier. Paul Ryan has been one of the most vocal about his condemnation of the tariff plan, someone who usually keeps his condemnation to himself for the sake of the party.

There is likely to be degree of markets trying to decipher a lot of last night’s news, and that could be something that gives the market a little bit of life prior to the US jobs report later this afternoon. We have seen a gradual drip of some major pairs with a smattering of US dollar strength coming in on the back of the NK news.

So onto the payrolls and expectations today are for a reading of 205K, with average hourly earnings dropping slightly to 0.2% from last month’s 0.3% on a monthly basis. Wages are still looking like the most important reading here as the big movements in markets will be on hints towards 3 or 4 rate hikes. Slightly higher than expected wage growth could see a slight pop higher in inflation expectations which in turn could give the US dollar a short term shot in the arm. But this is the Non Farm Payroll so expect the normal amounts of volatility and short term markets swings while traders decide what risk appetite looks like.