It’s been a familiar pattern in the Sino-U.S. trade war since 2018. Combative tweets from Donald Trump, high-level talks between the two sides, a stalemate, more tariffs and counter-tariffs, and then conciliatory messages.

This time it was Trump’s turn for a surprise move, raising the stakes in this real world version of the poker game. China then swiftly said it will have to take counter measures.

Global stock and commodity markets are diving deep into the red with investors skeptical over chances of success for Trump’s gamble and scrambling for cover in traditional havens such as top-rated government bonds, Swiss francs and Japan’s yen. Benchmark bond yields have plummeted, with the entire German government borrowing horizon out to 30 years now in negative territory for the first time.

Chinese seed and food company shares and rare-earth firms are rising as they anticipate Beijing won’t buy more from the United States. U.S. shoe, apparel and consumer goods manufacturers are groaning about potential input price rises as well as hits to demand for their exports and damage to their supply chains.

The question of who’s suffering most from a trade war has no straight answers. Many reckon no one wins. The Fed’s interest rate cut this week may help ease the manufacturing pain in the United States, but the dollar has surged against the yuan since and will offset that for U.S. firms. China has done a lot more targeted fiscal and monetary easing, can more easily source U.S. imports from elsewhere and also has the ability to inflict pain on U.S. commodity and farm sectors that back a Trump presidency.

Trade data due out from China on Thursday is likely to reinforce a trend of declining exports and imports, the latter also a function of slowing investment and demand at home. Its trade surplus with the U.S. has been rising too. Growth may be at its weakest pace in 27 years, but foreign investor inflows into China suggest there is no hand wringing yet.


Investors can’t get enough of U.S. Treasuries these days and that’s good news for the upcoming auction of $84 billion of new debt. The U.S. Treasury Department is looking to sell $38 billion of 3-year notes, $27 billion of 10-year notes and $19 billion of 30-year bonds between August 6 and August 8.

Appetite seems insatiable for U.S. Treasuries after the U.S. Federal Reserve’s first interest rate cut in more than a decade and President Trump’s move on Thursday to extend tariffs to essentially all Chinese imports, escalating a trade conflict that is now poised to further hit U.S. consumers and businesses.
And with Trump and Congress having struck a deal on a two-year extension of the debt limit in July, another obstacle is out of the way.

Trump’s tariff curve ball to the Fed saw markets immediately price in chances that policy makers may have to cut rates more aggressively. U.S. 10-year Treasury yields touched 1.832% in the wake of Trump’s tariff move. The massive drop in benchmark yields marked their lowest level since Nov. 9, 2016 – the day after Trump’s surprise presidential win. Thirty-year yields hit 2.368%, the lowest since October 2016.

Raising a red flag of recession ahead, the inverted U.S. Treasury yield curve between 3 months and 10 years has fallen deeper into negative territory since the latest Trump tariff threat – falling to close to the 12-year lows of minus 26 basis points set earlier this year.


The central banks of Norway, New Zealand, Australia, India, Philippines and Thailand all hold interest rate meetings next week and hot on the heels of the first cut in U.S. rates in over a decade, action is almost guaranteed.

Some will be looking to follow suit. New Zealand is expected to trim another 25 basis points off its 1.50% main rate and there are outside bets that Australia could even make it three cuts in row having already dropped borrowing costs down to 1%.

India is expected to make its fourth cut of the year too as growth continues to slow there and while Thailand is not expected to move the strength of the baht is clearly causing worries again.

Then there is the outlier Norway. The issue there is whether or not it sets up a September rate hike. It has been flirting with the idea for months but it might decide that now might not be the best time to do it. If that’s the case it will have to massage its message accordingly.


It will be busy in Europe next week with a blitz of data ranging from updated euro zone July services PMIs and HSBC results on Monday, German industrial orders, output on Tuesday and Wednesday and ThyssenKrupp (TKAG.DE) and Adidas (ADSGn.DE) results on Thursday that should show how European consumer and industrial wallets have been holding up.

It comes after two top German firms offered a snapshot of the euro zone’s flagging economy this week: Industrial heavyweight Siemens (SIEGn.DE) joined a chorus warning of weaker demand for automotive parts and other products, highlighting how the region’s manufacturing recession is sending shivers through the corporate heartland.

The warnings came as data showed euro-zone manufacturing contracted at its steepest rate since late 2012 in July as China’s slowdown and escalating global trade tension bite.

In contrast, results from Europe’s biggest e-commerce fashion retailer, Zalando (ZALG.DE), UK retailer Next (NXT.L) and sportswear group Puma (PUMG.DE) have not shown any major belt-tightening on the high street or online. On Thursday, Zalando hiked its profit outlook after a big jump in visits to its website.

This suggests that consumer spending may help the region avert a corporate recession in the second quarter. It also provides another rare ray of hope that household spending may help prop up the region’s economy with little sign that factories will be cranking up the gears any time soon.


The plunge in the British pound in recent days delivered investors a dose of what might happen should the market’s worst fears about Brexit – a disorderly, disruptive break from the European Union in October – come to pass.

Sterling skidded to a 30-month low against the dollar, below $1.21 GBP=D3 and down 2.2% in less than a week, as fund managers, industry executives and Bank of England Governor Mark Carney all lined up to warn about the hit to the economy of a no-deal Brexit under new Prime Minister Boris Johnson.

The week should provide some insight into how the economy is holding up amid the political uncertainty: On Monday, the Purchasing Managers’ Index for Britain’s all-important services sector is published for July, with a Reuters poll forecasting a reading of 50.2, barely above the line of 50 that separates growth from contraction.

Friday sees the release of June gross domestic product data. Economists predict 0.1% growth rate month-on-month and 1.2% on a year earlier, down from 1.5% in May. Industrial output is forecast to have shrunk, as is manufacturing.

Some expect the economy may have shrunk in the second quarter, while the BoE on Thursday slashed its growth forecasts for this year and next.
The pound’s fortunes remain at the mercy of Brexit uncertainty, but should the economy’s downturn prove worse than feared, expect more losses for the British currency.