29 July to 4 August: Trade tensions between the US and China enter a new chapter

Events last week unfolded so fast that investors are still gasping for air. It all started with Fed Chair Powell’s post-rate cut speech, in which he argued that the Fed was unlikely to deliver a long series of rate cuts –strengthening the USD and driving the S&P500 lower. Later, US President Trump unexpectedly announced his plans to impose 10% tariffs on USD 300bn worth of Chinese goods. The President’s idea further disrupted investor sentiment globally. And just this morning, the Chinese government delivered their response by weakening the Chinese renminbi above the threshold of 7 against the greenback. The renminbi’s slide strongly suggests, in our view, that the Chinese government could have lost its patience with the US President and are not going to hold back from using more aggressive tools anymore, such as the devaluation of their currency. Therefore, we believe that the trade war saga has entered a new chapter, where the opposing sides could resort to more drastic tools than the imposition of tariffs.

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