Trade war beginsBy Arnaud Masset
The USA took its first shot Friday, stomping US$34 billion of tariffs on Chinese imports. If China retaliates, the duties could rachet up to US$550 billion. Meanwhile, the Trump administration plans to extend tariffs to another US$16 billion worth of goods. China looks unlikely to back down: things will only get worse.
Financial markets have yet to react: investors don’t really know where to stand. The dollar index was down 0.10% to 94.30, the single currency rose 0.20% to 1.1715, while the Swiss franc and Japanese yen were treading water. The Chinese yuan was down only 0.10%. Equities were blinking green across the screen, while bond yields were relatively stable on both side of the Atlantic.
American economic data was mostly ignored. The latest ADP employment report came in weaker than expected: US companies added fewer jobs than expected. June private payrolls increased by 177,000 versus 190,000 forecast, yet May’s reading was revised upwardly to 189,000. Initial jobless claims rose 3,000 to 231,000 last week: expectations were for 225,000. June nonfarm payrolls will publish later today: they should ease to 195,000 (versus 223,000 in May). Unemployment should remain at 3.8%. Wage growth is the only missing piece of the full employment puzzle. Despite significant improvement in employment, wages have increased only 0.3% in the last twelve months.