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Tariff Exemption Deadline Looms; Euro Zone CPI Beats Estimates

Published May 31, 2018
  • The Canadian government has created its list of targets if, and likely when US President Donald Trump refuses to exempt Canada from steel and aluminum tariffs with the deadline set for June 1st. The Canadian government has omitted the exact details pertaining to the possible options available for responsive tariffs. It is generally expected that officials plan to respond to any imposition of new tariffs by the American president this Friday, as the current exemption extension granted last month is set to run out unless a new one can be secured. This comes alongside NAFTA negotiations that are quickly running out of time, with limited practical progress being accomplished.
  • The European Union faces exposure to the imposition of tariffs from the Trump administration as Washington is planning to impose import tariffs on European steel and aluminum after finding no satisfaction in its effort to win trading concessions on the issue. The European Commission has stated that the bloc should be permanently exempted from the tariffs since it is an ally and not the cause of steel and aluminum overcapacity. An announcement dropping the EU from an exemption to global tariffs of 25% on imported steel, and 10% on aluminum, could come on Thursday. If tariffs are reinstated by the US, the retaliatory action from European Union trade regulators will target American products such as motorcycles, jeans and bourbon.
  • EUR/USD has gained slightly Thursday morning, currently trading at 1.1690 at the time of writing. This continues the upward movement the euro has established recently, with recent economic data reinforcing the trend. Early this morning, the euro zone CPI estimate jumped to 1.9%, well above the estimate of 1.6%. Additionally, core CPI flash estimate improved to 1.1%, above the estimate of 1.0%. Euro zone inflation indicators have provided strong cause for a boosting of the euro.
  • OPEC and non-OPEC producers have committed to cut output by 1.8 million bpd until the end of 2018, however, will decide in late June whether to prolong this course of action. Brent crude prices have strongly reversed earlier losses and has managed to gain considerably against US futures Thursday morning, as the prospect of more inventory increases has continued to weigh heavily on West Texas Intermediate prices. At the time of writing, Brent crude futures are at $77.70, while US West Texas Intermediate crude sits at $67.45.
  • Matteo Salvini, the leader of the Italian far-right party, the League, has cancelled political rallies to return to Rome. The move has been viewed as an indication that the political deadlock that has left the country without a completely functional government for the past few months, could potentially come to an end. Salvini has gone back to the capital to meet his coalition partner, Luigi Di Maio, after the Italian president gave the pair more time to form a government. Any government formed by the coalition would have a relatively narrow majority in the senate, effectively limiting its ability to invoke any dramatic alterations in policy.
  • USD/CAD continued its move lower after a hawkish Bank of Canada meeting yesterday, where the Central Bank left rates on hold. A change of policy was never expected on Wednesday, so the published statement was always likely to garner most of the market’s attention as many analysts are strongly suggesting that a rate hike will come at the subsequent July meeting. The Bank of Canada has raised interest rates three times inside the last year, with markets consistently inferring high probability of the bank pulling the trigger the next time around.