US – China Trade War Reignites

Weekly Report - 06/08/2018

Tariffs and More Tariffs


Risk aversion resurfaced in the market last week as a US-China trade war looked increasingly imminent. China released a list of $60.00 billion in US goods that Beijing plans to slap with tariffs in retaliation for President Donald Trump’s proposal to impose duties on $200.00 billion worth of Chinese imports. The US Dollar retreated late last week against a basket of currencies after nonfarm payrolls growth in the country turned sluggish in July after two robust months of job gains.

The Week That Was

Aside from the employment figures, the US Federal Reserve left its benchmark interest rates unchanged and said US growth stood on firm ground. Second quarter GDP grew at an annualised pace of 4.10% while consumer spending remained brisk. In corporate earnings news, Apple topped Wall Street’s earnings and revenue expectations, sending shares soaring and in the process helping the tech giant become the first company to move above a trillion dollar market capitalization. Across the Atlantic, the Euro remained weak as subdued July manufacturing growth in the region kept investors cautious. Meanwhile, the British Pound was the worst performing major currency as investors questioned the Bank of England’s need to unleash its hawkish policy stance. The Yen continued its struggle against the US Dollar after the Bank of Japan caught a few market watchers by surprise on Tuesday when it voted to retain its ultra-easy monetary policy. The effort is intended to boost inflation, which the Central Bank acknowledged could remain below its 2.00% target until at least 2021.


Main Focus This Week

The week ahead is likely to be dominated by Central Bank inputs from Australia and New Zealand, as well as US inflation data and GDP numbers from the UK. The Reserve Bank of Australia will announce its interest rate decision on Tuesday, while the Reserve Bank of New Zealand will follow suit on Wednesday. Neither of the two Central Banks is expected to make any changes. However, the Aussie and the Kiwi will both be in focus as investors seek clues about changes in these banks’ dovish tones. From the US, the upcoming CPI data for July is likely to continue the rising trend, with the consensus forecast for inflation to show a 0.20% month-over-month reading. Sterling will be driven by UK Q2 GDP growth numbers due for release next Friday. The quarterly reading is projected to arrive at 0.40% compared to the prior quarter’s 0.20% while the annualized figure is expected to show the economy growing at 1.30%.


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