Markets reacted violently to Donald Trump’s comment on Friday when he ordered US companies to leave China, adding that the “US doesn’t need China anyway”, following the Chinese announcement of retaliatory tariffs on the US. US stocks fell by around 2.5%-3% while the metals were up by 2% and the US$ index was down by 0.96%, all due to safe haven demand. His comments, via Twitter, more or less eclipsed the much anticipated speech from Fed Chair Jerome Powell at Jackson Hole, where Powell gave his most forceful warning yet about the risks to the US economy from the escalating trade tensions – and the limits to the Fed’s ability to cushion any fallout. He also signalled that the Fed would follow up on last month’s rate cut with an additional reduction soon although he stopped short of saying how much stimulus the Fed might provide beyond that. Powell’s comments were seen as a further dialing down of his post-FOMC press conference, where he made his “mid-cycle adjustment” assessment, and although clearly not as dovish as Donald Trump would like at Jackson Hole, the Fed, as Powell noted, is meeting its employment and inflation mandate, is aware of risks to the economy and stands ready to act if needed. The real action though came via Trump’s Twitter account, which seemed to be timed to coincide with Powell’s speech, and then after the market closed Trump announced a further 5% tariffs on China so we can expect further volatility at the Monday open and in the week ahead.
Over the weekend, the G7 has taken place, although there was no joint communiqué for the first time in the G7’s history, and instead the headlines were focused on Donald Trump’s comments that he regrets not raising tariffs on China even higher. His remarks were later countered by the White House in saying that his words had been misinterpreted. The other main issues of the G7 were focused on economic policies, Brexit, Russia’s involvement in the summit (Russia was expelled from the G7 in 2014 over its annexation of Crimea and the discussion was centered on whether it should be allowed to be reintegrated into the group) and on climate change.
Looking ahead, Monday will be nervous, with safe haven demand likely to dominate direction and we are already seeing Jpy strength and US$ weakness in early trade, while the Aud$ is also trading with a heavy bias. The only items of note on the economic calendar will be the German IFO Business Climate/Expectations and then the US Durable Goods Orders for July (exp +1.0%mm) and Dallas Fed Mfg Business Climate. Tuesday will feature the German Q2 GDP (exp 0.1%mm, +0.4%yy) and the US Consumer Confidence, House Price Index, Richmond Fed Mfg Index and the Case Shiller House Price Index, while Wednesday will be thin, with just the Australian Q2 Construction Work Done and the German Consumer Confidence on the agenda. Thursday and Friday will both be busy sessions though, with plenty to come from the US, including the US Q2 GDP, Personal Consumption/Expenditure, Wholesale Inventories, Goods Trade Balance, Pending Home Sales, (Thursday) and then the US Personal Consumption/Expenditure Index, Chicago Purchasing Managers Index and Michigan Consumer Sentiment Index (Friday). Other items of note will be the Australian Private Capital Expenditure and the German CPI (Thur) and the NZ Building Permits and Activity Outlook alongside the Australian Private Sector Credit, Building Permits and New Home Sales. Later on sees the German Retail Sales and the UK Mortgage Applications. Have a good week.
Economic data highlights will include:
Mon: NZ Trade Balance, Japan Leading Economic Index, Coincident Index, German IFO Business Climate/Expectations, US Durable Goods Orders, Dallas Fed Mfg Business Climate, Chicago Fed National Activity Index
Tue: German Q2 GDP, US Consumer Confidence, House Price Index, Richmond Fed Mfg Index, Case Shiller House Price Index
Wed: Australian Q2 Construction Work Done, German Consumer Confidence, Swiss ZEW Survey, EIA Crude Oil Stocks Weekly Change
Thur: Australian Private Capital Expenditure, Japan Consumer Confidence, German Import/Export Index, Unemployment, EU Economic Sentiment Indicator, Industrial Confidence, Services Sentiment, Business Climate, German CPI, US Q2 GDP, Personal Consumption/Expenditure, Wholesale Inventories, Goods Trade Balance, Pending Home Sales,
Fri: NZ Building Permits, Activity Outlook, Australian Private Sector Credit, Building Permits, New Home Sales, Japan Unemployment, Industrial Production, Retail Trade, Housing Starts, Construction Orders, Tokyo CPI, German Retail Sales, EU Unemployment, US Personal Consumption/Expenditure Index, Chicago Purchasing Managers Index, Michigan Consumer Sentiment Index, Baker Hughes Oil Rig Count
Market moves, in brief:
FX: DXY 97.26 (-0.96%)
Bonds: US10Y; 1.531% (-5.77%), German 10Y; -0.673% (-4.78%), UK 10Y; 0.488% (-6.23%), Australian 10Y; 0.985% (+6.98%), NZ 10Y; 1.145% (+4.09 %), China 10Y; 3.067% (+0.32%)
Stock Indices: DJI; -2.37%, S+P; -2.59%, NASDAQ; -3.00%, EUStoxx50; -1.17%, FTSE100; -0.47%, Shanghai Composite; +0.49%,
Metals: Gold $1527 oz (+1.93%), Silver $17.40 oz (1.90%), Copper $2.527 lb (-1.19%)
Oil: WTI $53.85 pb (-2.73%)
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