Biden administration reconsidering Trump tariffs

• The Biden administration is reportedly considering suspending some of the Trump-era tariffs on Chinese exports, a step that would help at the margins to bring inflation lower in the US. Consumer goods look likely to be the first targeted segment for an easing of trade restrictions with a decision potentially to come this week, according to press reports. The decision could help to spur an improvement in global trade sentiment, feeding through into markets, even if the current main contributors to high inflation in the US—energy costs and demand for services—wouldn’t be directly affected.
• Madis Muller, the governor of Estonia’s central bank and a member of the ECB’s governing council, said the bank should stick with its plans for a 25bps hike in July following by a 50bps hike at the September meeting. The hot inflation print for June inflation in Eurozone has cleared the way for the first hike since 2011 this month and there is scope for 50bps hike to lead off.
• Turkish CPI inflation came in at 78.6% y/y in June, up from 73.5% the previous month but marginally lower than the consensus projection of 80.0%. On a monthly basis price growth accelerated from 3.0% in May to 5.0% in June, albeit also slower than consensus of 5.7%. While Turkey is seeing the same food and energy related price shocks as the rest of the world (food prices rose 93.9% y/y in June), there are domestic factors at play as well – not least the sharp depreciation of the lira over the past year – and core inflation was at 57.3% y/y last month. With PPI inflation still elevated at 138.3% y/y in June there will likely remain upwards pressure on consumer prices over the months to come, confounding central bank expectations that price growth would start to moderate from here – especially as the lira has resumed its depreciationary trend. The next TCMB MPC meeting is scheduled for July 21 with the one-week repo likely to remain on hold at 14.0%.
• The UAE will provide AED 28bn of social support to low-income national families to help offset the rising cost of fuel and food. In addition, financial support for unemployed citizens over the age of 45 will also be provided. The support scheme will cover national households with total income of up to AED 25,000 a month.
• In Saudi Arabia, King Salman bin Abdulaziz al Saud has announced SAR 20bn of social support to help lower income families of which SAR 10bn will be paid directly as cash while the rest will be used to build up stockpiles of basic commodities.

Today’s Economic Data and Events

• 08:30 AU RBA Cash rate: forecast 1.35%
• 09:00 IN Composite PMI June
• 12:00 EC Composite PMI (f) June: forecast 51.9
• 18:00 US Factory orders May: forecast 0.5%

Fixed Income

• US Treasury markets were closed at the start of the week for the Independence Day holiday. On the open today, however, they are trading with a lower bias with the 10yr UST yield up 9bps to 2.969%. In European markets, bonds were weaker across the board. Yields on the 10yr bund rose 10bps to 1.328% while the 10yr gilt yield added more than 11bps to 2.193%.
• Israel hiked policy rates by 50bps overnight to 1.25%, its largest move since 2011, to target elevated inflation. Prices rose by 4.1% y/y in May.

FX

• Currency markets were relatively quiet with the US out of action. EURUSD settled at 1.0422, relatively unchanged while GBPUSD added 0.19% to 1.2118. USDJPY added another 0.3% to close at 135.62.
• Commodity currency showed more action, however, with USDCAD at 1.2861, down 0.29% while AUDUSD rallied a strong 0.75% to 0.6865. NZDUSD added 0.26% to 0.6208.

Equities

• US equity markets were closed yesterday, but there was broad positivity elsewhere to start the week. In Asia, the Shanghai Composite added 0.5% and the Nikkei 0.8%. In Europe, the DAX dropped -0.3%, but the CAC (0.4%) and the FTSE 100 (0.9%) both started the week on the front foot.
• Local markets dropped yesterday by contrast. The ADX ended the day down -0.4%, the Tadawul lost -0.9% and the DFM dropped -1.4%.

Commodities

• Oil prices opened the week on a stronger footing with Brent futures up 1.7% to USD 113.50/b. There was no overnight settlement in WTI but it is up strongly today at USD 111.03/b, up 2.4%. There are few near-term fundamental catalysts to push the market one way or the other for now, suggesting that some choppy trading may ensue.

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