· The U.S. dollar fell against the Japanese yen on Thursday afternoon after President Donald Trump said he would impose an additional 10% tariff on $300 billion worth of Chinese imports on Sept. 1.
Trump made the announcement in a series of tweets after an American delegation returned from trade talks in Beijing, saying China had failed to deliver on its promises to buy large quantities of agricultural products from the United States, and to curb sales of the synthetic opioid fentanyl.
The dollar was 1.32% weaker at 107.31 yen JPY= after hitting a two-month high overnight. The safe-haven yen rose as traders moved out of riskier assets. The dollar index .DXY turned negative after Trump's remarks, last down 0.20% to 98.325.
The benchmark 10-year U.S. Treasury yield US10YT=RR dropped below the technically significant level of 2% for the first time in more than two years to 1.878%, its lowest since November 2016.
· The surprise tariffs President Donald Trump announced Thursday on $300 billion or so of Chinese goods takes the trade dispute between the two countries to a new level, even though in dollar terms it doesn’t amount to a whole lot.
The president’s announcement jolted markets, which had bounced back sharply off Wednesday’s disappointing Fed rate cut only to have their legs cut out from underneath them by news of a heightened trade war.
Trump’s move means that all Chinese goods entering the U.S. will be subject to some sort of duties. While the actual price tag of the latest action is technically just $300 billion, or about 0.14 percentage point of GDP, the psychological damage that could be inflicted comes at an inopportune time.
Indeed, if business surveys have been clear about anything it’s that American business is nervous about trade. The closely watched Institute of Supply Management manufacturing survey dipped again in July and is teetering on contraction territory, while the Federal Reserve’s key manufacturing gauge has fallen for consecutive quarters.
· Morgan Stanley strategists said the latest round of tariffs, if implemented, would contribute to “slowbalization,” or a continuation of lackluster growth, and could hasten a U.S. recession in as soon as three quarters.
“One key reason: about 68% of the next goods tariffed will be consumer goods and autos/parts, with more potential for immediate impact to the economy,” Morgan Stanley strategist Michael Zezas said in a note.
“Tariffs are affecting the part of the U.S. economy that is most integrated into world trade,” Adams said. “This latest increase in tariffs increases the likelihood that higher trade barriers are the new status quo.”
As for more specific impacts, Adams sees the tariffs raising inflation and lowering disposable income, which increased just 2.5% in the second quarter, its lowest rise in nearly two years.
He also projects a hit to consumption as well as increased margin pressure, particularly for heavy exporters. Q2 earnings season hasn’t been kind to S&P 500 companies that generate more than half their sales outside the U.S., with profits down 13.6% from a year ago.
Inflation could hit sectors such as electronics, clothing, footware and toys and be a credit hit to companies in those sectors along with manufacturing, and apparel and leather, according to Moody’s Investors Service, a credit rating firm. Other sectors that face impact as the trade war escalates include crude oil, transport equipment and semiconductors.
Retaliation from China could come in a number of forms, including tariffs on U.S. goods and pressure on American companies operating there.
· North Korea on Friday fired two short-range ballistic missiles into the sea, multiple intelligence sources told NBC News.
The missiles did not appear to pose any immediate threat to the U.S. or its allies in the region, NBC reported.
· U.S. President Donald Trump on Thursday played down what appeared to be North Korea’s third missile launch in just over week, saying they were short-range and “very standard” and would not affect his willingness to negotiate with Pyongyang.
South Korea’s military said unidentified short-range projectiles were fired at 2:59 a.m. and 3:23 a.m. local time on Friday from North Korea’s South Hamgyong Province into the East Sea.
· Bank of Japan policymakers discussed the possibility of further easing, with one board member saying the central bank must overcome deflation by keeping its stance of taking some kind of policy response if its price outlook comes under threat, minutes of the central bank’s June 19-20 meeting showed on Friday.
The BOJ kept policy steady at the June meeting. At a subsequent meeting this week, the central bank stood pat but said it would ease “without hesitation” if a global slowdown threatens Japan’s economic recovery.
· Crude oil plunged on concerns the global economy would weaken further after President Donald Trump ended a tariff ceasefire with China. The president said additional tariffs of 10% on the remaining $300 billion in Chinese goods would be added in September.
Futures for WTI crude dropped 7.9% to $53.95. WTI broke a 5-day winning streak with its worst daily performance in more than 4 years.
Brent crude, the international benchmark, also fell more than 6% to $60.67 following Trump’s tweets. Brent had its worst day since February 2016.
Reference: CNBC, Reuters
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