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Cohn's Departure Reveals Trump Determination to Impose Tariff? BOC More Cautious over Trade Relations with US Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Thu Mar 08 18 00:05 ET

Resignation of Trump's chief economic advisor Gary Cohn might signal that the President is determined to impose the metal tariffs. Traders remained cautious as the situation continues to evolve. Risk appetite soured a bit. Wall Street dropped with the DJIA and S&P 500 indices losing -0.33% and -0.05% respectively. Treasury yields were largely unchanged at close. Major currencies moved sideways with Canadian dollar the worst performer as BOC cautioned over the intensifying uncertainty in the trade outlook. In the commodity sector, energy prices fell across the board with the front-month WTI and Brent crude oil prices losing -2.32% and -2.2% respectively. Precious metals were pressured. The benchmark Comex gold and silver contract slipped -0.57% and -1.72% respectively. For PGMs, the Nymex platinum and palladium contracts declined -1.8% and -1.95% respectively.

BOC left the policy rate unchanged at 1.25% in March. The accompanying statement heightened cautious over the trade outlook. Policymakers suggested that "trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks", in addition to reiteration of the need for remaining "cautious in considering future policy adjustments". This has overshadowed BOC's more upbeat assessment over the economic outlook (with exception of foreign trade). BOC acknowledged slower than expected GDP growth in 4Q17, attributing it to "higher imports, while exports made only a partial recovery from their third-quarter decline". It noted that "the gain in imports mainly reflected stronger business investment, which adds to the economy's capacity. It, however, downplayed the fact that consumption growth weakened during the period. Moreover, BOC noted that "wage growth has firmed, but remains lower than would be typical in an economy with no labour market slack". In Janaury, the central bank acknowledged that wages have "picked up but are rising by less than would be typical in the absence of labour market slack". The slightly more upbeat wage growth outlook was accompanied with a modest upgrade on the inflation assessment on which the central bank indicated that the increase in both the headline and core readings have been "consistent with an economy operating near capacity". In January, it noted that inflation was moving "consistent with diminishing slack in the economy". This implied that most of the slack in the economy has been absorbed and the effect would gradually reflect on growth of wage and price levels.

On oil inventory, the US Energy Information Administration (EIA) shows that total crude oil and petroleum products stocks slipped -0.02 mmb to 1202.58 mmb in the week ended March 2. Crude oil inventory added +2.41 mmb to 425.91 mmb although stock increased in 3 out of 5 PADDs. PADD 3 inventory rose +2.58 mmb for the week. Cushing stock dropped -0.61 mmb to 28.18 mmb. Utilization rate increased +0.2% to 88%. Meanwhile, crude production increased +0.0.9M bpd to 10.37M bpd for the week. For refined oil products, gasoline inventory fell -0.79 mmb to 251.03 mmb as demand rose +4.7% to 9.28M bpd. Production gained +5.37% to 9.92M bpd while imports soared +36.32% to 0.61M bpd during the week. Distillate inventory slid -0.56 mmb to 137.43 mmb although demand added +0.13% to 3.93M bpd. Production added +2.84% to 4.6M bpd while imports rose +28.02% to 0.27M bpd during the week.

On the dataflow, the ADP survey estimated US employment increased +235K in February, beating consensus of +200K. Meanwhile, the latest Beige Book report (covering the period from January 9 to February 26) suggested "persistent labor market tightness and brisk demand for qualified workers" across the Districts. It noted that the overall US economic activity expanded at a "modest to moderate" pace in January and February. This signals the non-farm payrolls due Friday might also surprise to the upside. On foreign trade, US trade deficit widened to a 9-year high of US$ 56.6B in January, compared with consensus of US$ 52.8B, and February's US$ 53.9B. Meanwhile, Canada's trade deficit narrowed more than expected, to CAD 1.91B in January. However, it was driven by a -4.3% decline in imports and a -2.1% drop in exports.

Today's focus is undoubtedly the ECB meeting. It would maintain the policy rates unchanged with the main refi rate, the marginal lending rate and the deposit rate staying unchanged at 0.00%, 0.25% and -0.40% respectively. The focus is on the hint over when the central bank would adjust its forward guidance.


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