Of Trump's Trade Tariff, BoJ Policy Meet, and Top Cues During the Week

US President Donald Trump followed through on his pledge to impose stiff tariffs on imported steel and aluminium, while excluding Canada and Mexico and leaving the door open to sparing other countries on the basis of national security.

The president signed a proclamation authorizing the tariffs at a meeting Thursday afternoon with workers from the steel and aluminium industries.

The US will levy a 25% duty on steel imports and 10% on aluminium, the same level Trump promised when he revealed the plan on 1st March.

The aluminium and steel import tariffs will take effect in 15 days.

Furthermore, the president warned there would be more tariffs coming, saying he plans to proceed with what he has called "reciprocal taxes" on imports from countries that charge higher duties on US goods than the US now charges on their products.

Reports noted that the prospect of further exclusions should trigger a push by US allies in Europe, Australia and elsewhere to lobby for similar treatment to Canada and Mexico.

Notably, Trump's authority to establish the tariffs stems from a US Commerce Department investigation that found that imports of the metals pose a risk to national security.

The probes were authorized under the seldom-used Section 232 of the 1962 Trade Expansion Act, which gives the president broad powers to impose trade restrictions on domestic security grounds.

One of the recent editions of Equitymaster Insider explains how the above salvo could have grave consequences for global trade as well as the stock markets. You can read the same here (requires subscription).

In other news, the Bank of Japan (BoJ) kept its monetary stimulus unchanged on Friday at Governor Haruhiko Kuroda's final policy meeting before his new term begins next month. The central bank also stuck to its upbeat view on the economy.

In its policy statement, the BOJ said inflation expectations have been more or less unchanged and also repeated its view that domestic demand is likely to follow an uptrend, with inflation rising toward 2%, mainly due to an improvement in the output gap and higher medium-to long-term inflation expectations.

Note that the BoJ has pushed back the timing to reach its price target many times since it deployed its massive stimulus programme in 2013. It now hopes that consumer inflation will achieve its 2% target by March 2020, as signs of strength in the economy and a tight job market boost wages giving households higher purchasing power, allowing firms to hike prices.

What remains are many issues that can hamper Japan's economic growth going forward.

Also, the recent win of Japanese Prime Minister Shinzo Abe in elections also signals the continuation of Abenomics - the ultra-loose monetary and fiscal policies. These policies have influenced excessive money printing, too much debt, and too much government intervention in Japan.

As Ankit writes in one of the editions of Equitymaster Insider... "With Abenomics, Japan has gone overboard trying to revive its economy. The Bank of Japan is a Top 10 holder in over 90% of Japanese stocks. And it remains one of the biggest buyer of Japanese stocks."

It would be interesting to see the impact central bank's ultra-easy money policies will have on the economy going forward. Meanwhile, we'll keep you updated on all the recent developments in this space.

Global indices ended the week on a strong note. European stocks traded on a positive note. Germany (DAX) ended with gains of 2.12%, France (CAC) ended with a gains of 2.07%, and the London market (FTSE) was up 1.53%. Asian markets too ended the week on a positive note. The Nikkei Index was up 2.03%, the Hang Seng Index was up 3.71%, and the Shanghai Index was up 1.54%. US markets traded in the green and ended their session with a gains of 3.14%.

Indian Stock Market Witnesses Selling Pressure

Back home, the Indian indices ended their weekly session on a negative note. The BSE Sensex was down 2.17% for the week, while the NSE Nifty was down 2.21%.

All the sectoral indices traded in the red. Metal (-6.87%), Telecom (-5.65%), and Energy (-3.35%) were the biggest losers for the week.

Banking stocks witnessed selling pressure this week after the Serious Fraud Investigation Office (SFIO) summoned top bankers, including ICICI Bank CEO Chanda Kochhar and Axis Bank CEO Shikha Sharma, in a case related to Rs 50 billion loan extended to Mehul Choksi's Gitanjali Gems.

As per the news, the SFIO summoned senior executives from 31 banks with business dealings with the firms promoted by Nirav Modi and Choksi.

In the news from the IPO space, HG Infra Engineering Ltd made a tepid debut on bourses today. The scrip of the company, which recently concluded its IPO subscription offer, got listed at Rs 270, same as its issue price.

In other news, the levy of trade tariff by Trump sent Indian metal stocks in the red, with SAIL share price, NMDC share price, JSW Steel share price, and Tata Steel share price witnessing most of the selling pressure.

Note that India's steel industry was just coming out of a rough patch. Demand was picking up. Steel prices were on the rise. Buyers were lining up to pick up stressed assets. With the expected pick up in the investment cycle, the sector was on the upswing. And steel exports were on a roll.

However, Donald Trump has now spoiled the party with his plans to impose the above tariffs. India produces a lot of both commodities but internationally, we are not a big player. The US imports only 2.4% of steel and 2% aluminium from India.

But it's not that simple.

With the new US tariffs, major exporters like South Korea will look to sell in other countries. This would lead to a glut and as a result, lower prices across the industry.

How exactly this trade war will unfold is something to watch out for. We'll keep you updated on all the developments from this space.

Nifty 50 Index Plunges 2% for the Week
Nifty 50 Index Ends at Life-time High

The Nifty 50 Index traded on a negative note during the week.

On Monday, it opened the session gap down and plunged 100 points. The negative momentum continued until mid-week where the index slipped to a low of 10,141. It bounced back nearly 90 points towards the end of the week. On Friday, the index resumed its down move and ended its weekly session 2.21% down.

Last week, we observed the index finding support from the rising trendline (blue line). But this week, it broke below this trendline and plunged to touch a low of 10,141.

The index has now found a strong support near this level from the horizontal line (previous resistance now support). The 200 day moving average (DMA) also acted as a good support for the stock.

So can the index resume its up move after finding support from horizontal level and 200 DMA? Or will it break this support level as well. Let's wait and watch...

COMMODITIES

Gold Trades on a Negative Note

Gold traded on a volatile note during the week. On Monday, it opened the session gap down and continue trade lower to end the session negative. It witnessed some buying interest on the next trading day. But the buying was temporary as the yellow metal gradually traded down for the rest of the week. The selling was seen as investors moved out of safe assets like gold on hopes of easing tensions between the United States and North Korea. Finally, on Friday, gold continued to trade down and ended the weekly session marginally down.

Gold Ends Marginally Down

Crude Oil Witnesses Buying Interest

Crude oil traded on a negative note during the week. It opened its session up on Monday and continued to trade north to end the session positive. But the buying was temporary as the black gold slipped lower for remainder of the week. Soaring US crude oil production and rising inventories were weighing on crude oil prices. Finally, on Friday, the commodity witnessed buying interest and ended its weekly session with 0.55% gains.

Crude Oil Ends Half a Percent Up

CURRENCIES

Dollar Trades on a Negative Note

The dollar traded on a negative note during the week. It opened its session lower on Monday and continued to trade down until mid-week. The currency fell due to sustained dollar selling by exporters and banks. It witnessed some buying interest towards the end of the week as the American unit strengthened overseas amid foreign fund outflows. Finally, on Friday, the currency witnessed some more buying but ended the weekly session marginally down.

Dollar Ends in the Red

Commodities 02nd Mar 09th Mar % Change
Gold/10 gms 30,448 30,401 -0.15
Silver/kg 38,848 38,947 0.25%
Crude Oil/barrel 3,995 4,017 0.55%
Natural Gas/mmBtu 177.40 178.10 0.39%
Currencies 01st Mar 09th Mar % Change
USD / INR 65.38 65.30 -0.12%
EUR / INR 79.77 80.35 0.73%
GBP / INR 89.92 90.26 0.38%
JPY / INR 61.27 61.20 -0.11%

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