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Busch: Negative Theme Week

As trading unfolds this week, we begin with two major themes filtering through the market. Both are negative and both are inducing a decline in equities to start the trading session.

The first began last week on Friday evening when the United States brought tire trade sanctions against China. President Obama announced that the US would impose tariffs of 35% on $1.8 billion worth on tires from China. Obama acted upon a complaint brought by the United Steelworkers union that surging Chinese imports were costing US factory jobs. This was not a suit that was taken to the WTO, but was recommended by the US ITC . This appears to be an effort by the Obama administration to keep their word on campaign promise by being tough on China.

This drew virulent vitriol by Chinese websites like "The US is shameless!" and other fun name calling. Quickly, the Chinese government announced sanctions on US auto and chicken parts. They've also asked to meet with US trade representatives to discuss the tire sanctions. All of this should come as no surprise to the Obama administration. Therefore, you have to wonder if politics is driving good policy.

The other major theme will be the anniversary of Lehman's collapse with a focus on where the US is on its financial regulatory reform. Again, President Obama is driving the newsflow on this topic as he head to NYC to deliver a speech on the topic tomorrow. Today, we have two Federal Reserve members Lacker and Duke speaking on the topic.

Obama's speech is to cover his suggested reforms. From mortgages to foreclosures to derivatives, the President's legislative agenda is quite broad as one would imagine after a near financial apocalypse. Also, he wants to create two new regulatory agencies: the Consumer Financial Protection Agency and the National Bank Supervisor.

Due to Obama's focus on health care reform , the Congressional brain band width has very little left over for financial reform at this point. The only two things have been accomplished. A law was passed requiring credit card companies to inform consumers before increasing rates, it placed limits on fees, and restricting cards to 21 year olds. The other thing was a restriction on "naked" short selling. Not very impressive.

The point is that the newsflow will be negative as the media focuses on what happened at this time last year and what has not happened to change it. Coupled with the trade war, these negative themes are driving down the equity markets and causing US dollar buyers to arrive. Both of these markets were overextended and due for a bit of a pullback. Trade and regulation give them a chance to do it.

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Andrew Busch
Andrew Busch

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Andrew B. Busch is Global FX Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece andreach him here and you can follow him on Twitter athttp://twitter.com/abusch .