Trump tweets further tariffs - Bank of Ireland Corporate

Even by the standards to which we have become accustomed, Donald Trump’s latest trade missive – a 10% tariff on all remaining Chinese goods imports to the US (about $300bn worth) – has come as a surprise, particularly as talks between the two sides had just resumed. Not surprisingly the market reaction has been swift and sharp, with equity markets in the US reversing course to close almost 1% lower on the day and bond yields there falling sharply – the benchmark 10-year yield down around 15bps to 1.85% – as the prospect of a more aggressive Fed response gets priced in (the market now expects a full 50bps in interest rate cuts by the end of the year)

On the currency markets, the dollar is marginally weaker against the euro in trading close to but still under the $1.11 level this morning. The main beneficiaries – not surprisingly – have been the yen (which has strengthened to around Y107 against the dollar from close to Y109) and the Swiss franc (which has firmed to just under Sfr0.99). Meanwhile, separately, the pound has weakened to around $1.21 against the dollar and to around 91.5p against the single currency

The Bank of England left interest rates unchanged at 0.75% yesterday, as expected, and said in the event of a smooth UK exit from the EU rates would have to rise, albeit gradually and to a limited extent. However the BOE acknowledged the increasing risk of a no deal departure, which it said is currently weighing on the UK economy though it gave not hint that it would cut rates in the near-term in response

The UK manufacturing PMI came in at 48.0 in July – the same as in June – remaining below the key 50 level and so signalling an on-going contraction in activity in the sector. In the US, the ISM index of manufacturing fell back to 51.2 last month (from 51.7 in June) but at this level is still consistent with modest expansion in the sector

The July employment report in the US is the key release today, while other data include retail sales in the Euro Area and the construction PMI in the UK