Although new tariffs levied on Chinese products by the US come into force today (24th September), it was announced that already imposed tariffs will rise from 10% to 25% in 2019 and China responded its own measures in retaliation, markets reacted positively and gained considerably last week. The counter-intuitive response, e.g. the weakness of the broad dollar index (DXY) or the strong bounce of Chinese stocks, is a clear sign that markets have just had enough and lost interest in trade talks. In our interpretation, the positive reaction by markets could have been induced by a combination of various factors:
We are not fully convinced that markets are out of woods just yet, but to upset global market sentiment any further, the POTUS or China would have to strike an even harsher tone. Such an outcome is not likely, in our opinion, as neither the US nor China could reap economic or political benefits from such a scenario. Of course, Trump may think differently…
All eyes are on the Federal Reserve’s monetary policy meeting this week, as the FOMC will almost surely deliver a further 25bp hike to continue the tightening cycle. The rate hike itself will be a non-event, since it has been priced in for a long time. More importantly, Chair Powell will present the Fed’s updated macroeconomic projection, the FOMC’s latest ‘dot plot’ and answer questions in the regular press conference. In the second half of the week, markets will need to digest the third read of the 2018 Q2 GDP data and the August PCE inflation measure in the US. Relative to the US, Japan, the Euro Area and the UK will only release second-rate data, as the Bank of Japan publishes the minutes of its last rate setting meeting, several Eurozone member states reveal inflation figures, while the UK posts the final read of the Q2 GDP figure.
The Asian calendar is packed for the week, as the central banks of the Philippines and Indonesia are expected to raise their respective interest rates, while their Taiwanese peer might leave policy unchanged. Even though there is still a week to go until the end of Q3, the Vietnamese statistical office is scheduled to release Q3 GDP data. Latin American countries will release a wide variety of high-frequency indicators for economic activity throughout the week, and at the end of it, the Brazilian central bank will release its Inflation Report, while the Colombian central bank will hold a policy rate decision. In addition, Brazilian political news flow and NAFTA 2.0 talks will attract the attention of market players. African markets will keep a close eye on the Kenyan, Nigerian, Egyptian and Moroccan central banks’ monetary policy decisions in addition to Moroccan, Kenyan and Egyptian Q2 GDP releases.DOWNLOAD THE FULL ARTICLE View All Global Market Updates
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