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LGT Navigator: US government softens China tariff threats

August 14, 2019

Although the trade dispute between the US and China is far from a sustainable solution, news yesterday that Washington wants to waive some of the threatened punitive tariffs on Chinese imports raised investors' hopes. This led to an unexpected recovery in equity markets from the losses recorded at the beginning of the week and offers at least a short-term relief.

Trade_War_Escalation

The temporary relief in the trade conflict led to rising prices on the New York Stock Exchange. The broad-based S&P 500 index temporarily gained +2.0% and closed +1.5% higher than at the end of the previous day, while the gold price temporarily fell as much as -3.0%. Asia's stock market also rallied this morning after the U.S. Department of Commerce considered postponing ten percent tariffs on certain Chinese goods such as laptops and mobile phones. Other products such as computers, game consoles and monitors will be postponed until mid-December, Washington said.

Italy's Senate postpones debate on government crisis

Yesterday evening the Italian Senate in Rome postponed the further debate on the government crisis triggered by the motion of censure from the right-wing populist Lega party until next week – a setback for Lega leader Matteo Salvini, who is aiming for quick new elections. Next Tuesday, non-partisan Prime Minister Giuseppe Conte will be able to comment on the government crisis in the Senate. Salvini had brought down the coalition with the "5 Star Party" under PM Conte last week in order to force new elections as soon as possible, in which the Lega leader hopes to become Prime Minister himself. The uncertainty about the future course of the third largest economy in the Eurozone will continue to weigh on the capital markets.

US inflation picks up more strongly than expected

The cost of living in the United States rose more strongly in July than analysts had expected. Year-on-year, inflation was +1.8% compared to +1.6% in the previous month and market expectations were +1.7%. The core inflation rate, excluding the often volatile energy and food prices, climbed from +2.1% to +2.2%, its highest level since January. Increased inflationary pressure could influence the expected further easing of monetary policy on the capital markets by the US Federal Reserve (Fed). Nevertheless, more and more market participants are expecting a further easing of interest rates in the near future. The investment bank Morgan Stanley now forecasts the next interest rate cut to take place in September, followed by a further cut in October. As is well known, the Fed cut its key interest rate at the end of July for the first time since the financial crisis over a decade ago. Goldman Sachs had also recently rated the probability of two rate cuts in September and October as high.

China's central bank defies pressure from Washington

The Chinese central bank considers the current market valuation of the yuan to be appropriate. "The level reflects the current economic situation as well as supply and demand on the capital market, and China is prepared for all the consequences of the measures threatened by the US." Washington last week for the first time in 25 years had classified the People's Republic as a currency manipulator and thus exacerbated the trade war. The yuan has lost around ten percent in value since March 2018. However, China is obviously coming under increasing pressure from the trade dispute with the Americans, as the latest data on industrial production, for example, show. In July, production increased by only +4.8% year-on-year - the weakest increase since February 2002. Analysts had forecast growth of +5.8%, after +6.3% in June. Retail sales and investments were also weak in July.

Singapore lowers growth forecast

Singapore's economy is regarded as a barometer for the state of the world economy due to the high proportion of technology companies – the manufacture of electronic devices accounts for around 48% of Singapore's total industrial production – and the strong networking in Asia. Yesterday, the government of the South Asian city-state lowered its forecast for economic growth. Singapore therefore still expects GDP growth of 0.0% to +1.0% in the current year, compared with the previous forecast of +1.5% to +2.5%. In the second quarter, GDP grew by only +0.1%.

 

Economic Indicators August 14

MEZ Country Indicator Last
08:00 DE GDP (q/q) +0.4%
08:45 FR Consumer Prices (y/y) +1.3%
10:30 UK Consumer Prices (y/y) +2.0%
11:00 EZ GDP (q/q) +0.2%
11:00 EZ Industrial Production (y/y) -0.5%
14:30 US Import Prices (y/y) -2.0%

Earnings Calendar August 14

Country Corporate Period
CH Schindler H1
US Cisco Systems Q4

 

 

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Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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Impressum
Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Quelle: LGT Bank (Schweiz) AG
Core Personal Consumption Expenditure
MEZCountryIndicatorLast08:00DERetail Sales (y/y)-1.7%08:45FRConsumer Prices EU Harmonized (y/y)1.4%09:00ESGDP (y/y)2.4%09:55DEUnemployment Rate5.0%11:00EUGDP (y/y)1.2%11:00EUCore Consumer Prices (y/y)1.1%11:00EUUnemployment Rate7.5%11:00ITConsumer Prices EU Harmonized (y/y)0.8%12:00ITGDP (q/q)0.12%14:15USADP Employment Report102k20:00USFederal Funds Target Rate2.5%