All-out trade war could mean less support for safe-haven yen
US equity futures point to lower open
US Q3 GDP rises 2.8%, in line with forecasts
US weekly jobless claims fall
STOXX 600 down 0.3%
Dollar down ~0.7%; crude oil, gold, bitcoin up
US Treasury 10-year yield up at 4.259%
Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
ALL-OUT TRADE WAR COULD MEAN LESS SUPPORT FOR SAFE-HAVEN YEN
The safe-haven yen may not benefit as much from an all-out global trade war looming under the incoming Trump administration as it did in 2019, according to Karen Fishman, senior economist at Goldman Sachs in her latest research note.
President-elect Donald Trump has committed to impose 25% tariffs on products coming into the United States from Mexico and Canada until such time that the two countries are able to clamp down on illegal drugs and immigration. Trump also seeks to impose another 10% levy on Chinese goods.
The yen rallied against the dollar and euro following Trump's announcement on Monday and understandably so, being a safe haven. On Wednesday, the yen hit a five-week peak against the greenback. To recall, the yen also outperformed most currencies amid tariff announcements in 2019. But it was a somewhat different dynamic at that time, notes Fishman.
"While the U.S. economy was similarly strong at the end of 2018, with growth expectations for the year ahead at 2-2.5% and the unemployment rate around 4%—the level of inflation is very different from the Fed's perspective," Fishman writes.
"Going into 2019, core PCE had been averaging 1.5% for nearly the prior decade and stood at 2% in December 2018, whereas today it has fallen to 2.65% after having peaked at nearly 5.7% in 2022."
While U.S. inflation in late 2024 and 2025 is likely to come down, the risk has shifted toward fewer rate hikes next year given a generally stable labor market and solid U.S. economy overall, the Goldman analyst says.
The risks going into 2019, however, were skewed toward fewer Fed hikes. Ultimately the Fed ended up cutting rates that year. That scenario, Fishman notes, allowed for the 10-year real rate differential to consistently narrow in the yen's favor, as Fed expectations flipped from higher to lower policy rates.
Fast forward to 2024, inflation remains above target and the U.S. growth outlook is likely to stay relatively resilient even under Goldman's baseline of additional tariffs, she points out. Having sharply lower Treasury yields would probably require a more dramatic negative shift in the U.S. growth outlook, which is not a consensus expectation.
Fishman concludes that support for the yen against the dollar may be limited this time around.
(Gertrude Chavez-Dreyfuss)
*****
WEDNESDAY'S OTHER LIVE MARKETS POSTS:
POST-ELECTION OUTLOOK BRIGHT FOR VOLATILE U.S. SMALL CAPS - CLICK HERE
TARIFF RISK "MATERIAL" FOR EUROPE'S BEVERAGE MAKERS - CLICK HERE
TRUMP VICTORY UNLEASHED 'ANIMAL SPIRITS' U.S. EQUITY INFLOWS - BARCLAYS - HERE
STOXX 600 SLIPS, FRANCE UNDERPERFORMS ON BUDGET - CLICK HERE
EUROPE BEFORE THE BELL: FUTURES MIXED AFTER FOMC MINUTES, TARIFF THREATS - CLICK HERE
TRUMP TARIFF THREATS REVERBERATE IN ASIA -CLICK HERE
Trump dump https://reut.rs/3CCoHhO
European shares mostly lower, France underperforms https://reut.rs/3V7zUNW
DB beverage impact tariffs https://tmsnrt.rs/3ZqYfRA
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
