More Trump tariff talk
The euro closed out Friday trading just below $1.17 against the dollar, down around a cent on the week. It is marginally lower this morning, at about $1.1670, after Donald Trump’s weekend announcement of a new “reciprocal” tariff of 30% on the EU effective from 1 August (larger than the 10% tariff currently in place and the 20% announced on Liberation Day, 2 April, but lower than the 50% threatened subsequent to Liberation Day). The EU’s response has been measured, saying it will use the time to 1 August to try to reach a “negotiated solution”. Meanwhile, sterling lost ground to both the euro and the dollar on Friday following weaker than expected UK GDP numbers, and it remains on the back foot this morning, trading at around £0.8660 and $1.3470 respectively, ahead of some important UK data this week including CPI inflation on Wednesday and the labour market report on Thursday. The key release generally this week though is CPI inflation in the US scheduled for tomorrow.
European equity markets ended last week on a soft note, shedding around 1% or so on Friday, and they have opened in the red again this morning (off almost 1%), while the futures market points to a weak opening in the US later today (the S&P 500 and Nasdaq ended marginally lower on Friday after setting fresh all-time highs on Thursday). In government bond markets, yields backed up last week, notably at the long-end of curves, with German 10-year yields increasing by around 12bps and equivalent US and UK yields up about 6-7bps.
ECB Governing Council member Schnabel says “there would only be a case for another (interest) rate cut if we saw signs of a material deviation of inflation from our target over the medium term,” adding that “at the moment, I see no signs of that.” The market has been paring back the chances of a rate cut over the next few ECB meetings and is not pricing in a full 25bps reduction until March next year.
In contrast to last week, it’s very busy on the economic data front this week. As well as tomorrow’s CPI inflation release, other US data due include industrial production and retail sales on Wednesday and Thursday respectively. There are also plenty of Fed members scheduled to speak over the course of the week.