Dollar loses ground

It is all about Trump, tweets, trade and tariffs as far as markets are concerned at the moment. Trump’s threat to impose a 10% tariff on $300bn worth of goods imports from China from 1st September, together with the Chinese authorities’ decision to let the yuan weaken in response raising fears of a ‘currency war’ on top of a ‘trade war’, has seen equities fall sharply (US indices were down 3% yesterday), core bonds rally strongly (led by a fall in US 10-year yields of around 30bps over the past couple of trading sessions), and the dollar weaker further against the euro, albeit still relatively modestly so (to around $1.12from its high of around $1.10 in the middle of last week).

Sterling continues to trend lower amid on-going fears of a no deal Brexit and increased talk of a possible general election in the UK within the next few months. The pound has fallen to around 92p against the single currency and is now within shouting distance of its post 2016 referendum low of about 93p

Activity in the UK services sector improved slightly in July, according to the latest PMI (which rose to 51.4 last month from 50.2 in June), but still remained relatively subdued reflecting “domestic political uncertainty and concerns about the global economic outlook”

Employment in the US rose by 164k in July, a healthy gain, though the underling pace of jobs growth has slowed this year (from an average monthly increase of circa 225k recorded in 2018). Meanwhile, the ISM index of activity in the non manufacturing (mainly services) sector of the economy fell in July to its lowest level since 2016, another indication that economic growth is moderating

Data due over the remainder of this week includes a first estimate of GDP growth in the UK in the second quarter  (scheduled for Friday)