Main macro themes
Trade war. While the US and EU have smoked the peace pipe, the conflict between the US and China has escalated further. The Trump administration is now considering imposing 25% tariffs instead of 10% on USD200bn worth of imported goods from China. While the US thinks this would put China under pressure to make concessions, we think it will backfire and China has already said blackmail would not work and that it is ready to retaliate one-to-one. We still think it is difficult to see the two countries reaching a deal this side of the US midterm elections in November.
Policy. China has eased economic policy to counter 'external uncertainties' and money-market rates have fallen sharply. This came on top of monetary easing recently.
Central bank meetings. Most interesting was the Bank of Japan (BoJ) meeting, where the bank tweaked its policy by increasing the upper bound on 10Y JGB from 0.1% to 0.2% (mid-target still 0.0%) (see Bank of Japan Review - BoJ tweaks policy and introduces forward guidance, 31 July). The Bank of England raised the Bank Rate to 0.75% as expected (see Bank of England Review - Tight labour market will cause BoE to keep hiking , 2 August). There has been no real news from the Federal Reserve, which we believe is still likely to raise the target range in both September and December.
To read the entire report Please click on the pdf File Below: