Market movers today
Today’s main event is the FOMC meeting tonight, but it is likely to be uneventful. We expect the Fed to maintain the target range at 1.75-2.00% and given it is one of the small meetings, there will not be any updated projections or press conference. The only piece of information we will get is the statement, but it does not change much from meeting to meeting.
US ISM manufacturing is due out at 16:00 CEST, where consensus expects a larger decline than we do. Regional PMIs have in general been strong.
Final PMI manufacturing data in the eurozone also due. This is not expected to show significant differences from the flash. The UK PMI manufacturing index is not expected to change much from last month. We expect a marginal decline while consensus expects a marginal increase.
We expect the German lawmakers’ vote on the last Greek bailout instalment to be a formality.
Selected market news
Yesterday, the flash Q2 GDP growth estimate A lot of news on the trade conflict between US and China. First, there was a story in Bloomberg saying the US and China are trying to restart trade talks, as Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He are having private conversations on the subject. If this is true, it is the first time the two countries are trying to get back to the negotiation table, after Trump left it in May. Later, there was another story in Bloomberg saying the Trump administration is considering increasing the tariffs from 10% to 25% in the next round (USD200bn) in an attempt to put more pressure on China. If so, this should be announced ahead of the public hearing taking place late August.
It is difficult to say what this all means, but overall it seems like an escalation, although the stories are not confirmed yet. Mnuchin is a ‘dove’ on trade policy and is seems like the trade hawks are more powerful, probably due to the fact that Trump is still under pressure domestically to stick to a tough course with China ahead of the mid-term elections in November. The attempt to try to force China back to the negotiation table is probably also going to backfire, as China has little more to offer than it has done already. In our view, a deal is still far away, and we would consider an increase to the proposed tariff rates from 10% to 25% an escalation.
Yesterday, the flash Q2 GDP growth estimate for the euro area disappointed, as it showed growth slowed to 0.3% q/q from 0.4% in Q1, against expectations of an unchanged print. Economic data has weakened in the euro area and growth is significantly slower this year than last year, where growth was 0.7% q/q on average. HICP core inflation rose, at least on paper, from 0.9% to 1.1%, but looking at the second decimal place, the increase was from a high 0.9% (0.94%) to a low 1.1% (1.07%). The data does not change anything for the ECB, which is on hold ‘at least through the summer of 2019′.
