Highlights
Global equities markets rallied across the board with the Nasdaq Composite index leading the way in the U.S., up 3.73% week-on-week and closing at a record high. The Trump administration’s new round of global tariffs kicked in on Thursday, though several large U.S. trading partners had already reached agreements prior to the week’s deadline, and the market reaction appeared to be more muted compared with other recent tariff actions. However, the agreements reached so far still need legal testing and serve more as frameworks than binding deals. Disagreements over their interpretation have already emerged. The U.S. President shifted his focus to Indian goods by signing an executive order that will raise the overall U.S. tariff rate on Indian exports to 50% in about three weeks because of the country’s direct and indirect oil purchases from Russia, which remains in a conflict with Ukraine. U.S. trade negotiations with the Swiss counterparts also bore no fruit, leaving levies on Swiss imports at 39%. Meanwhile, markets were rattled by weaker-than-expected U.S. employment figures — especially when factoring in the downward revisions to previous months’ figures. In fact, the U.S. revisions prompted Trump to dismiss the head of the Bureau of Labor Statistics (BLS), the department responsible for compiling the data. However, economists posit that the limited increase in employment may not be due to falling demand but to a shrinking labour supply, driven by sharply reduced immigration and the deportation of foreign workers. This adds a layer of uncertainty to an already complicated balancing act by the Federal Reserve although there seems to be an increasing likelihood of the Federal Reserve lowering interest rates at its next meeting in September. Several Fed officials made comments during the week suggesting rate cuts could be in the near future while President Trump also announced that he would nominate Stephen Miran, the current chair of the White House’s Council of Economic Advisors, to temporarily fill a vacancy on the Fed’s Board of Governors, a move that some investors viewed as potentially favouring looser monetary policy. In the Euro area, strong retail sales and investor confidence data added to signs of a resilient eurozone economy in the second quarter. The Bank of England cut its key interest rate by 25bps citing concerns about a weakening labour market. The Monetary Policy Committee was split 5–4 in favour of the reduction after a second ballot—the first two-round vote since the inaugural meeting in 1998. In China, total exports in July surged a larger-than-expected 7.2% from a year ago to USD 322 billion despite the continued slump in U.S.-bound shipments, which sank 22% year on year in July. The latest data showed that Chinese companies were able to compensate for the loss of U.S. business with increased sales to other markets.
Data Highlights
Canada’s unemployment rate for July held steady at 6.9%, slightly lower than market expectation of 7%. Switzerland inflation increased to 0.2% YoY, above market expectation of 0.1% increase. New Zealand unemployment rate rose to 5.2%, less than the 5.3% forecast by analysts. In the Eurozone, the year-on-year retail sales in June rose to 3.1%, higher than the 2.6% forecast and much higher than the previous 1.9% report for the previous month. Unemployment rate in Switzerland held steady at 2.7% in July, unchanged from previous month and lower than market forecast of 2.8%. The Bank of England voted by a fine margin to cut interest rates by 25 basis points to 4% which matched market expectations. China’s balance of trade report for July came in at USD +98.24B versus USD +105B expected and USD +114.77B for prior month.
Week Ahead
Australia Interest Rate Decision, U.S Unemployment Rate, US Consumer Price Index – Tuesday | Australia Unemployment rate, U.K GDP Growth Rate, Eurozone Employment Change – Thursday | Japan GDP Growth Rate, China Unemployment Rate, U.S Retail Sales – Friday
