New US tariffs announced

US President Donald Trump has announced new sweeping tariff rates for its trading partners across the world as the August 1 deadline arrived. The minimum baseline tariff rate will be 10%, while most countries with a trading surplus with the US will be on an automatic 15% rate. Countries facing notably higher rates however include Canada which is being threatened with 35%, India on 25%, Taiwan on 20%, Switzerland on 39%, Laos and Myanmar on 40%, and Syria on 41%. A 50% tariff on Brazil has been postponed, leaving it on the baseline rate. The new rates are set to come into force at the end of next week.

US PCE inflation picked up to 2.6% y/y in June, from 2.4% in May, higher than the predicted 2.5%. Core PCE was at 2.8%, in line with the previous month after it was revised up from 2.7%. Consumer spending saw a modest rise, and while the data does not show signs of particular stress in the US economy, it does raise questions around its direction, especially as tariffs come back into the spotlight. Initial weekly jobless claims were steady in the week to July 26 at 218,000, from 217,000 the previous week, while continuing claims were unchanged.

China’s S&P Global PMI manufacturing survey dipped to 49.5, down from 50.4 in June and missing the predicted 50.2. This takes the index back into contractionary territory, with poor weather and rains being cited as a negative impact.

Saudi Arabia has released its preliminary GDP results for Q2, showcasing another strong quarter of growth. The headline expansion rate was 3.9%, up from 3.4% in Q1, with a robust performance across the economy. On a seasonally adjusted quarterly basis, real GDP growth almost doubled to 2.1% q/q, from 1.1% in Q1. This marked the strongest pace of quarterly growth in several years, driven in particular by a rise in oil production in the second quarter. Oil GDP was up 3.8% y/y in Q2, from -0.5% the previous quarter, while non-oil growth slowed modestly to 4.7%, from 4.9% previously.

CPI inflation in France was unchanged at 0.9% y/y in July, slightly faster than the predicted 0.8%. On a monthly basis, inflation was at 0.3% m/m – down from 0.4% in June but higher than the predicted 0.2%. In Germany, inflation was at 1.8% y/y, down from 2.0% previously and beating the predicted 1.9%. Eurozone inflation is due for release today with a predicted rate of 2.3% y/y and -0.1% m/m.

Turkey’s trade deficit widened to USD 8.17bn in June, from USD 6.65bn the previous month. This was broadly in line with expectations. Excluding energy and non-monetary gold, the deficit was a narrower USD 3.58bn. Imports rose by 15.2% y/y, while exports were up 7.9%. Germany was the top destination country for exports while China topped the imports list.

Today’s Economic Data and Events

16:30 US nonfarm payrolls, July. Forecast: 104,000

18:00 US ISM manufacturing survey, July. Forecast: 49.5

Fixed Income

• Yields on USTs were little changed yesterday as data came in in line with expectations and markets wait to see the latest NFP report due for release today. Yields on the 2yr were up by 2bps to close at 3.9571%, while the 10yr was almost unchanged at 4.3740%.

FX

• The dollar index gained for a sixth straight session yesterday, closing up 0.2%. The Euro closed up 0.1% to 1.1415, but GBP dropped 0.2% to 1.3207. JPY weakened 0.8% to 150.75.

Equity Markets

• US equity markets sold off yesterday as the new tariffs were announced. The NASDAQ closed almost flat as tech earnings had a good week, but the S&P 500 dropped 0.4% and the Dow Jones closed 0.7% lower.
• Locally, the DFM fell 0.8% while the ADX added 0.2%. The Tadawul closed up 0.1%.

Commodities

• Oil prices sold off as new tariffs were announced, despite the support from potential new sanctions on Russian energy. Brent futures closed down 1.0% to USD 72.5/b, while WTI fell 1.1% to USD 69.3/b.