US and China extend trade truce

The US has extended its pause on applying high tariff rates to Chinese goods imported into the US for another 90 days while China has also said it won’t apply retaliatory tariffs on the US, also for 90 days. The US and China had reached a trade truce earlier this year, pulling back from the high tariff levels both countries had imposed on each other, but the lower tariff rates were due to expire today. The truce is likely to be welcomed by markets and avoid worsening the inflation outlook in the US but a pattern of delay and suspension still provides high levels of uncertainty on the consistency of US trade policy.

The US has now also confirmed it will not apply tariffs to imports of gold according to a statement from President Donald Trump. The US customs office last week gave notice that it would be implementing tariffs on imports of bullion.

Today’s Economic Data and Events

• 08:30 AU RBA Cash rate target: forecast 3.6%
• 10:00 UK ILO employment rate 3mths June: forecast 4.7%
• 11:00 TU Current account balance June: forecast – USD 1.3bn
• 13:00 GE ZEW survey expectations Aug: forecast 39.5
• 14:30 IN CPI y/y July: forecast 1.4%
• 16:30 US CPI y/y July: forecast 2.8%

Fixed Income

US Treasuries traded in relatively narrow ranges with an absence of major catalysts to push prices one way or the other. US inflation will be out later today which will have a much more meaningful impact on the near-term outlook for Treasuries.

Markets are closing into a 90% probability of a September 25bps cut from the Fed with inflation data today a major step in confirming it.

Regional credit markets were bid up overnight with wide gains across investment grade and corporate GCC bonds. At a geographic level, the UAE, Saudi Arabia and Qatar bond indices stood out with greater than a 0.1% gain.

FX

The US dollar was broadly stronger against peers overnight though some of the gains were faded later in the session. EURUSD closed lower by 0.2% at 1.1615 while USDJPY added 0.3% to 148.15. GBPUSD slipped by 0.2% to 1.3432 while USDCHF added more than 0.5% as pressure remains on the Swiss economy and its exposure to US tariffs.

In emerging markets the Turkish lira strengthened overnight with USDTRY down 0.14% at 40.6171 while the Egyptian pound also pulled moderately stronger with USDEGP lower by 0.1% at 48.486.

Equities

US equity markets started the week on the back foot with losses in the Dow Jones of 0.5% and both the S&P 500 and NASDAQ falling by 0.3%. European markets were more mixed with the Euro Stoxx index lower while the FTSE managed a near 0.4% gain.

In local markets the DFM held near unchanged while the ADX 15 was lower by 0.2%. The Tadawul recorded a near 1% loss.

Commodities

Oil prices showed minimal movement overnight with Brent futures recording a gain of less than 0.1% on the close to USD 66.63/b while WTI added just 0.1% to USD 63.96/b. The prospect of a trade truce extension between the US and China will likely be welcome by commodity markets generally but a more lasting solution would ultimately be more impactful.

Gold prices were lower by 1.6% overnight to USD 3,342.37/troy oz while silver prices also followed. Aluminium and copper prices dipped overnight while iron ore was up by nearly 0.9%.