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. This week, China published a list of US products it is going to hit with tariffs (USD60bn) if Trump moves along with this. We still think it is difficult to see the two countries reaching a deal this side of the US mid-term elections in November.
Policy. In the second half of July, China eased both fiscal and monetary policies to counter 'external uncertainties'. In early August, China has made it more expensive to short its currency by raising reserve requirements on foreign exchange contracts
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 6 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 6 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.
The US hit Turkey, Iran and Russia with new economic sanctions on 1, 6 and 8 August. The RUB and TRY have fallen sharply since the sanctions were revealed.