Market Briefing: Renewed tariff jitters
Have a look at the latest edition of our Event Radar & Views In A Nutshell pack.
Market jitters. US tariff announcements dampened sentiment. Equities a little lower. USD firmer. EUR, AUD, & NZD lost a bit of ground.
Lingering risks. Tariffs look here to stay. Are 'glass half full' markets complacent about the growth/inflation challenges posed by tariffs?
Event radar. In Australia the jobs report is due (Thurs). China GDP (Tues), US CPI (Tues), & US retail sales (Thurs) also out. More US tariff news likely.
Global Trends
Renewed US tariff jitters dampened sentiment at the end of last week, and further news over the weekend has exerted a bit more downward pressure on risk assets this morning. President Trump has sent out more letters threatening to raise tariffs on 1 August, though this batch has been focused on more economically significant US trading partners such as Canada, Mexico and EU. Canada and Mexico were informed that 35% and 30% tariffs could be levied on non-USMCA compliant goods, while imports from the EU (which account for ~20% of US goods imports) are facing a 30% duty. In an interview President Trump also noted he is eyeing blanket tariffs of 15-20% on most trading partners.
Nervousness about the growth/inflation outlook stemming from higher US import costs and potentially weaker global production/trade due to reduced US demand saw equities lose ground (S&P500 -0.3%, EuroStoxx600 -1%) and bond yields edge higher. The US 10yr rate rose ~6bps to 4.41%, slightly above its 6-month average. In FX, the USD ticked up with EUR (now ~$1.1675) slipping back and the yield sensitive USD/JPY rising (now ~147.30). GBP also weakened (now ~$1.3484), as did cyclical currencies such as the NZD (now ~$0.5997) and AUD (now ~$0.6566).
Data wise, it is a busier time over the next few days than last week. The China data batch which includes Q2 GDP (Tues), US CPI inflation (Tues night AEST), the Australian jobs figures (Thurs), US retail sales (Thurs night AEST), and Japanese CPI (Friday) are due. On top of that more US tariff announcements are also likely. In our opinion, tariffs on US imports appear here to stay in some form, especially as they are a government revenue stream that helps partially fund things like tax cuts. We continue to believe that optimistic and short-sighted markets may have become complacent to the economic challenges posed by tariffs. Signs of renewed tariff induced inflation in this week’s US CPI could see markets trim US interest rate cut expectations. Although we have a negative USD outlook over the longer-run, if realised we believe an upward repricing in US interest rates might give the USD (which is still below our ‘fair value’ estimate) some more support over the near-term.
Global event radar: China GDP (Tues), US CPI (Tues), US Retail Sales (Thurs), Global PMIs (24th July), ECB Meeting (24th July), US GDP (30th July), BoC Meeting (30th July), FOMC Meeting (31st July), BoJ Meeting (31st July)
Trans-Tasman Zone
Rekindled US tariff related risks sapped sentiment and supported the USD at the end of last week (see above). As a result, the NZD (now ~$0.5997) and AUD (now ~$0.6566) have given back a bit of ground, though both are still tracking towards the upper end of their respective multi-month ranges. The push-pull forces have seen the AUD put in a mixed performance on the crosses. The AUD is ~0.3-0.4% higher against the JPY, GBP, and NZD compared to where it was this time on Friday, yet it is a little lower versus the EUR (-0.1%) and CNH (-0.4%).
In Australia the volatile monthly employment report is out this week (Thurs). In China, Q2 GDP is released (Tues), and in the US CPI inflation (Tues night) and retail sales (Thurs night) are scheduled, with several US Fed members also speaking. Added to that, we anticipate more US tariff letters outlining the levies set to kick in on 1 August to be issued.
As discussed late last week and above, we think there is scope for renewed bursts of USD supportive volatility to come through over the next few weeks due to US tariff concerns. We believe markets might have become too complacent to the downside growth and upside US inflation risks stemming from tariffs. As illustrated in the chart below, our estimate of the US' 'effective tariff rate' is still historically high. In our view, a pick up in US inflation could see markets trim their US Fed interest rate cut expectations, which in turn may take more heat out of the AUD after its strong run. As would a softer Australian labour market report. We feel the subsamples within the labour force survey suggest the risks are tilted to the Australian unemployment rate rising compared to consensus projections looking for it to hold steady at 4.1%. Signs cracks in the jobs market are widening could reinforce thinking the RBA will lower interest rates a few more times over H2 2025.
If we look further ahead, we would also flag once again that the AUD has typically had negative seasonal tendencies in late-July/August. AUD/USD has declined in August in 21 of the past 28 years. The implementation of the US' new tariffs (1 August), improved US GDP growth (30 July), an on hold US Fed (30 July), positive US jobs report (1 August), a RBA rate cut combined with more ‘dovish’ guidance (12 August), signs of tariff induced US inflation (12 August), and/or no more deals struck at the end of the US-China tariff truce (12 August) could be catalysts for this pattern to repeat in 2025.
AUD & NZD event radar: China GDP (Tues), US CPI (Tues), AU Jobs (Thurs), US Retail Sales (Thurs), NZ CPI (21st July), RBA Bullock Speaks (24th July), Global PMIs (24th July), ECB Meeting (24th July), AU CPI (30th July), US GDP (30th July), BoC Meeting (30th July), FOMC Meeting (31st July), BoJ Meeting (31st July)
AUD levels to watch (support / resistance): 0.6480, 0.6520 / 0.6595, 0.6630
NZD levels to watch (support / resistance): 0.5930, 0.5980 / 0.6040, 0.6090
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
MONDAY (14th July)
SGD GDP (Q2) (10am)
CNY Trade Balance (June) (12pm)
EUR ECB’s Vujcic Speaks (5:30pm)
TUESDAY (15th July)
EUR ECB's Cipollone Speaks (1am)
AUD Consumer Confidence (July) (10:30am)
CNY GDP (Q2) (12pm)
CNY Retail Sales (June) (12pm)
CNY Industrial Production (June) (12pm)
CNY Fixed Asset Investment (June) (12pm)
EUR Germany ZEW Survey (July) (7pm)
EUR Industrial Production (May) (7pm)
USD CPI Inflation (June) (10:30pm)
CAD CPI Inflation (June) (10:30pm)
USD Fed’s Bowman Speaks (11:15pm)
WEDNESDAY (16th July)
USD Fed's Barkin Speaks (3am)
USD Fed’s Collins Speaks (4:45am)
GBP BoE Governor Bailey Speaks (6am)
USD Fed’s Logan Speaks (9:45am)
GBP CPI Inflation (June) (4pm)
EUR ECB’s Villeroy Speaks (6pm)
USD Fed's Barkin Speaks (10pm)
USD PPI Inflation (June) (10:30pm)
USD Industrial Production (June) (11:15pm)
USD Fed’s Hammack Speaks (11:15pm)
THURSDAY (17th July)
USD Fed Beige Book (4am)
USD Fed’s Williams Speaks (7:30am)
JPY Trade Balance (June) (9:50am)
AUD Jobs Report (June) (11:30am)
GBP Jobs Report (May/June) (4pm)
EUR CPI Inflation (June F) (7pm)
USD Retail Sales (June) (10:30pm)
USD Import Prices (June) (10:30pm)
USD Initial Jobless Claims (10:30pm)
FRIDAY (18th July)
USD Fed’s Kugler Speaks (12am)
USD NAHB Housing Index (July) (12am)
USD Fed’s Daly Speaks (2:45am)
USD Fed’s Cook Speaks (3:30am)
USD Fed’s Waller Speaks (8:30am)
JPY CPI Inflation (June) (9:30am)
USD Housing Starts/Building Permits (June) (10:30pm)
SATURDAY (19th July)
USD Uni. Michigan Sentiment (July P) (12am)
*Note, all times/dates provided are AEST
About the author
