Good morning,

USD: Trump announces another load of tariffs on Chinese goods

We’re back to talking about tariffs after the US Trade Representative released a fresh list of $200bn worth of Chinese products that will be hit with tariffs, fulfilling Trump’s threat to retaliate if China chose to fire back against his original charter. These increased tariffs will not come into effect immediately, but will undergo a two-month review process, with hearings set for August 20-23.

From my initial scanning – 66 pages of the 205 page document – of the items covered in this new tariff plan, the focus has fallen more on raw materials as opposed to finished goods coming into the US economy. We will be watching US producer price data closely to see just how quickly these price increases are fed through into the US economy and therefore how quickly US businesses and consumers start to get poorer thanks to the Trump administration.

USDCNH was the largest mover on the announcement, jumping by close to a per cent, with AUDUSD falling by 0.6%. China’s vow to fight back has calmed markets for now.

GBP: Holding up

After the week it has already had, asking sterling to rally on data was always going to be a bit of a stretch and the pound was offered at least some stability. Yesterday’s publication of the first monthly GDP measure from the ONS has confirmed what we’ve known for a while; Q1 was hideous – as now seen in a stagnation between February and April – and that Q2 will be slightly better, although well below where everyone would want it to be 10 years after the Global Financial Crisis.

Services are the main driver of this increase and forever shall be; indeed this number will move higher in June and July courtesy of the average UK consumer’s desire to spend their hard-earned when the sun is out and football is on. Unfortunately the sunshine will peter out and the World Cup will end and the growth picture will turn to meagre real wage increases and Brexit uncertainty for a level of support that they cannot provide.

Mark Carney told us last week that this numbers will be enough to give the Monetary Policy Committee the information they need to make a decision on rates. This data release will not be enough to change sentiment within the Monetary Policy Committee and expectations are now back to a 78% chance of a hike. It is our belief that unless a general election is called – an outside chance even after Monday’s upheaval – we see the base rate rising by 25bps on August 2nd.

Have a great day.