The markets on Friday — tariff troubles brew while populism wins in Italy

1 — Tariffs go into effect and troubles are brewing

The Trump administration said it would impose its steel and aluminium tariffs on US allies including Canada, Mexico and the European Union starting from today. In anticipation of the move, US indices fell yesterday with investors fearing a real trade war could now become a reality. The Dow Jones finished 1.02% lower, led by losses for Caterpillar (-2.28%) and Boeing (-1.68%), while the S&P500 dropped 0.69%, on track for a weekly loss.

Signalling Europe’s plans for retaliation over the decision from the US, France’s junior trade minister Jean-Baptiste Lemoyne said: “We are getting ready to put in place safeguards and rebalancing measures, because we won’t let unjustifiable and unjustified measures go unanswered.” As of yet, no concrete plans have been announced, but the European Union formerly hinted at placing tariffs on US businesses including Harley Davidson.

The overall market reaction was not as strong as expected however, indicating that investors are becoming familiar with the negotiating tactics of the Trump team. The Japanese Yen (a traditional safe haven currency) moved lower versus the Dollar, as did gold, which usually rises in times of political uncertainty.

2 — Populism wins the day in Italy

Italy’s parliament is due to swear in the continent’s first anti-establishment administration this afternoon, after leaders of the 5-Star movement and the League managed to agree a cabinet with the President Sergio Mattarella. The Cboe Italy 40 index moved up by 2.65%, giving a reprieve to investors with money in Italian stocks.

In order to get the agreement, the populist leaders agreed to shift arch-eurosceptic Paolo Savona from a prominent economic post to the lesser role of EU affairs minister, in a concession to Mattarella, instead choosing to install Giovanni Tria in the role — a man who favours Italy staying in the single currency (Euro). Amazingly, even though his credentials were brought into question, the relatively unknown Giuseppe Conte (pictured) is set to head the coalition. The question now is how much the new leaders intend to shake up Italy’s relationship with the EU and what this could mean for investors.

3 — Asian markets climb with NK summit in focus

Asian stock indices looked healthier at the open, led by South Korea’s KOSPI index which moved up by 0.66%, after news broke that North Korean leader Kim Jong-un had sent a letter to Trump, as the 2 sides tried to put the derailed summit (formerly scheduled for June 12th in Singapore) back on track. The correspondence came soon after North Korean representatives met with Secretary of State Mike Pompeo yesterday. The White House has not released a statement yet detailing what was in the letter, but regardless markets took it as a sign of progress. These developments may be part of the reason US stock futures are higher today, pointing to a move up in US indices at the open, helping to offset worries about trade.

Today we are watching

ICICI Bank Ltd shares surged 5% to Rs298.85 after reports that CEO Chanda Kochhar has been asked to proceed on indefinite leave from the company she has helmed for almost a decade, until an independent enquiry announced by the lender’s board to probe alleged cases of impropriety is concluded.

Tesla tumbled 2.4% Thursday on news that General Motors and other firms continued to make progress with their self-driving technologies, while UBS reiterated a Sell rating and $195 price target on Tesla’s stock, saying investors should pay attention to the firm’s liquidity issue regardless of headlines about the Model 3 production rate.

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