- US-China trade tensions were the focus of this week after a series of tit-for-tat measures. The US named China as a “currency manipulator” after the Chinese authorities allowed a depreciation of the exchange rate which saw the RMB breach the symbolic level of 7 – the first time since 2008.
- The central bank said it was in response to “unilateralism and trade protectionism measures and the imposition of increased tariffs on China”. This represents quiet push back by China against the latest escalation of trade tensions by the US.
- On 1 August, President Trump announced additional tariffs on Chinese exports into the US. Around $300bn worth of Chinese exports, particularly consumer goods, will face tariffs of 10% from 1 September, which means that effectively all Chinese goods will face tariffs. The latest move by the US will likely harden China’s position in trade negotiations and raises the risk of policy missteps.
- The UK economy contracted in Q2, the first time since 2012, as inventories unwound from a buildup in Q1 in preparation for the original 31 March Brexit deadline and growth in the service sector slowed. UK GDP fell 0.2% quarter-on-quarter in June, taking the annual rate down to 1.2%.
- The Q2 reading was in line with the general weakening trend in the economy, with Brexit-related uncertainties affecting investment and distorting inventory and import data. Postively, household consumption remained buoyant, helped by robust wage growth and low unemployment.
Rest of World
- Surprising markets, the central banks of New Zealand, India and Thailand all delivered unexpected policy rate cuts on Wednesday. The Reserve Bank of New Zealand (RBNZ) cut policy rates by an aggressive 50bp taking policy rates to a fresh historic low of 1%, reflecting weakness in growth and rising global trade tensions.
- The Reserve Bank of India (RBI) cut rates for the fourth time this year, by an unconventional 35bp to 5.4%. The RBI said that boositing demand was the highest priority now, after growth eased to the slowest pace in five years and inflationary pressures remain mute. The Bank of Thailand also unexpectedly cut rates by 25bp, on the back of falling goods exports, slower than expected inflation and slowing domestic demand.