US: Post FOMC, watch trade tensions and rising LIBOR - Nomura

Despite the relatively smooth passing of the FOMC meeting, analysts at Nomura remain somewhat cautious on the global risk environment, as they see other negative risks intensifying.

Key Quotes

“Trade protectionism is stepping up, with Trump (after only recently announcing tariffs on steel and aluminium) expected to announce USD50bn in China tariffs today based on intellectual property violations. Although Chinese Premier Li Keqiang has taken a more conciliatory stance recently by announcing (21 March) that China would open up its economy further and lower import tariffs, there have been numerous reports from Chinese media that China is prepared to retaliate against the US with actions ranging from possibly targeting agriculture or US corporates with operations in China.”

“The important question is whether the announcement today indicates the tariffs are immediate and whether they remain open for public consultation3 . If so, this could delay any actions and allow China to implement measures to ease trade tensions. The other growing focus of the market is the consistent rise in LIBOR-OIS and whether this will lead to a broader USD funding squeeze. We have not seen many signs of this from other indicators, such as cross-currency basis swaps, while explanations for the widening in LIBOR-OIS range from significant commercial paper issuance to UST bill issuances.”