News & Analysis

Week Ahead – New tariffs Kick-In

September 2, 2019

By Deepta Bolaky
 @DeeptaGOMarkets

Week Ahead

After a dreadful month of August where a wave of volatility swamped the markets, September kicks-in with the world’s two largest economies imposing new tariffs on each other. The latest escalation of a bruising trade war means that fears of a global downturn will prevail throughout the month.

While geopolitical risks such as Hong Kong protests, Brexit and the ongoing trade war will remain the prevailing factors driving sentiment, attention will also be on central bank decisions.

Trade Tariffs

The United States and China proceeded with their tariffs plans, and the new round of tariffs took effect on Sunday, the 1st of September.

  • The Trump administration imposed 15% tariffs on $112 billion worth of Chinese goods covering mostly consumer products.
  • China retaliated with higher tariffs being rolled out in stages on a total of about $75bn worth of US goods. The new wave of tariffs also marked the first-time fuel has been targeted.

Both countries are planning to collect additional tariffs in the coming months. The prospects of a resolution look grim, and the uncertainties of the ongoing trade dispute will keep fuelling recession fears.

Political Crisis

Britain, Italy and Germany will be in the spotlight as the political division in Europe is deepening:

Britain – Parliament Returns

The UK Parliament is due to return from its summer recess this Tuesday and will probably give MPs only a few days to meet ahead of a suspension requested by Prime Minister, Boris Johnson.

“The Queen has approved the order to prorogue Parliament no earlier than 9 September and no later than 12 September – with the suspension lasting until the Queen’s Speech on 14 October.”

The controversial move by the Prime Minister increases the chances of a no-deal Brexit. We expect the week to be full of surprises as MPs will be faced with a limited time window to prevent a hard Brexit from happening before the Brexit deadline of 31st October.

We therefore also expect to see more volatility in Sterling pairs this week driven primarily by Brexit noises.

Italy – A New Coalition 

The Prime Minister, Guiseppe Conte is urging political rivals to set aside their differences over migration and security to form a workable coalition. The new emerging coalition between the Democratic Party and the Five Star Movement is promising and is pending the approval of the nation’s President. The Deputy Prime Minister Matteo Salvini has banned a migrant-rescue boat and will likely use the situation to add pressure on the coalition talks.

We expect the Italian yields and equities to remain volatile amid the political developments on the new coalition. 

Germany – Regional Elections 

The elections held during the weekend have reshaped German politics and confirmed more fragmentation. AfD has surged in Saxony and Brandenburg, but it was not as major as the ruling parties have feared.

High-Frequency Economic Data 

The month will begin with a week packed with key economic releases which will allow market participants to have more insights on the global economy. Investors will also monitor closely the several central bank decisions scheduled across the week.

The Reserve Bank of Australia will be in the spotlight at the start of the week.  We expect the RBA to keep the interest rate on hold on Tuesday but with a bias to cut further before the year ends. Traders will scrutinise the tone and language that will be used to describe the Australian economy.

Key Economic Events for the Week:

Australia 
Tuesday: Retail Sales, RBA Rate Statement and decision
Wednesday: Gross Domestic Product
Thursday: Exports, Imports and Trade Balance
Friday: AiG Performance of Construction Index

United States 
Tuesday: Manufacturing PMI
Wednesday: Trade Balance and Fed Speeches
Thursday: ADP Employment data, Jobless Claims, Non-Manufacturing PMI, Factory Orders, Nonfarm Productivity, and Unit Labor Costs.
Friday: Nonfarm Payrolls, Average Hourly Earnings, Unemployment Rate, Labour Force Participation and Fed’s speech.

Eurozone 

Monday: Markit Manufacturing PMI (Germany)
Tuesday: ECB’s Nominated President Lagarde Speech (EZ)
Wednesday: Markit PMI Composite (Germany& EZ), Retail Sales and ECB’s Lane Speech (EZ)
Friday: Industrial Production and Factory Orders (Germany), EZ GDP

 

Tuesday, 03 September 2019
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
4.226 0 0.201 0.08 0.13 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 4.197 0 0

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