While risk assets generally cheered the delay of tariffs on a multitude of Chinese goods, Citi analysts think that the delay serves to prolong trade tensions between US and China.
The Chinese yuan has depreciated sharply by 2% in the two days after Trump tweeted about additional tariffs. Meanwhile, markets plunged with US equities clocking their worst day in the year. The currency has clearly become a primary tool for China’s trade negotiations, just as tariffs are for the US.
Fed Cuts Rates by 25bps, but US Stocks Slid as Powell Sowed Doubt on Future Rate Cuts
By Jessica Tan
Despite a 25bp rate cut by the Fed at its 31 July meeting, markets gyrated as Fed Chairman Powell failed to provide clear dovish commentary on the interest rate outlook. Citi’s view: The FOMC is unlikely to embark on a full cut cycle. Just one further 25bp cut is expected in 2019, most likely in September.
US Q219 earnings season began last week, with 7% of S&P 500 companies reporting so far. Consensus expectations are on the pessimistic side, pointing to between 0 and -3% year-over-year earnings growth for the quarter.
At the G20 Summit, Presidents Trump and President Xi said the US would hold off on raising incremental new tariffs, while US and Chinese representatives resume work on trade negotiations where they broke off in early May. This outcome was largely in line with market expectations.
