US issues new tariff notices

As promised, US President Donald Trump issued letters to a number of countries yesterday, detailing their new tariff rates to be imposed by the US on their imports as the three-month reprieve to the initial ‘Liberation Day’ tariffs imposed on April 2 comes to an end tomorrow. Countries that have received their missives so far include major trading partners Japan and South Korea, both of which will see tariffs of 25%, while South Africa is quoted at 30%, and Thailand, Indonesia, and Cambodia will see 36%. However, it remains unclear as to whether these rates will actually be imposed or if it is simply another negotiating position from which the US will ease off in the coming weeks. Rather than coming in from July 9, the US government has said that August 1 will be their starting date, and Trump has been somewhat equivocal in his language, saying that this new deadline was not ‘100% firm’, and that ‘we’re not going to be unfair.’ The early market reaction suggests that investors are largely looking through the risk, seeing this latest salvo from the White House as an opening position with which to hasten negotiations and concessions rather than a firm one.

Yesterday, Donald Trump also threatened to impose an additional 10% tariff on BRICS aligned countries, for what he termed their ‘anti-American’ policies. This would impact both the UAE and Egypt if this threat was followed through on, given their recent accession to the body which has been meeting in Brazil in recent days.

Net reserves in Egypt rose to USD 48.7bn in June, up from USD 48.5bn the previous month, marking a new record high. Reserves are up significantly from the USD 35bn level at the start of last year as the financial position has improved on the back of renewed international support. It is a big week for data points out of Egypt, with both CPI inflation and the CBE rate-setting decision due in the next several days.

Today’s Economic Data and Events

8:30 Australia RBA rate decision. Forecast: 3.60%

Fixed Income

• Yields on USTs edged higher on Monday as they resumed trading after the long July 4 weekend. The 2yr added 2bps to 3.8946% while the 10yr was up 3bps at 4.3794%.
• The Central Bank of the UAE carried out its regular auction of m-bills at the start of the week, raising a total of AED 27.2bn with a weighted interest rate of 4.51%. The bank issued AED 6bn of 28-day bills at a yield of 4.54%; AED 3.2bn of 70-day bills at a yield of 4.56%; AED 4.5bn of 154-day bills at a yield of 4.57% and AED 13.5bn of 322-day bills at a yield of 4.47%.
• Alinma Bank in Saudi Arabia has mandated banks for a USD 5yr sukuk. Alinma has an ‘A-‘ rating from S&P with a stable outlook.

FX

• The US dollar index rose 0.3% on Monday. Gains were widespread against peer currencies as markets tried to digest what the effect of the latest round of tariffs might mean. JPY closed 1.1% weaker at 146.05, while the commodity currencies also fell markedly, with AUD down 1.0% at 0.6591, while NZD lost 1.1% to 0.5995.
• GBP closed 0.4% lower at 1.3602 while EUR was 0.6% weaker at 1.1709.

Equities

• US equity markets closed lower yesterday as the implications of the latest round of tariffs were examined. The S&P 500 lost 0.8% while both the Dow Jones and the NASDAQ ended the day 0.9% lower.
• Locally, the ADX added 0.3% and the DFM gained 0.9%. In Saudi Arabia the Tadawul closed up 0.3%.

Commodities

• Oil prices saw strong gains on Monday despite the weekend’s news around OPEC+ accelerating its return of barrels to the market once more from August. Renewed tensions around Red Sea shipping combined with indications of robust summer demand as Saudi Arabia raised the price of its crude in Asian sales to boost sentiment.
• Brent futures closed up 1.9% to USD 69.6/b, while WTI added 1.4% as it resumed trading from the long weekend, closing at USD 67.9/b.