Not talking about trade

Posted by: Paul Donovan

19 Aug 2020

Daily update

  • US President Trump has declared trade talks with China to be cancelled (under the phase one trade deal, they were supposed to be held every six months). Markets have assumed the phase one deal holds, as no one wants to be imposing additional taxes on companies and consumers. However, we are approaching the period of highest risk. If US President Trump taxed US consumers in September, the negative effects would probably not be obvious until after the November election.
  • The interminably tedious EU-UK divorce continues to be tedious and interminable. Talks have "stalled" over truck movements. Most observers judge October to be the deadline for a deal, and of course EU negotiations only ever result in a deal at the very last moment.
  • Japanese machinery orders fell within the consensus range of +7.8% to -10.9% m/m. The series is always volatile, but there is added uncertainty about investment. Localization and shifting supply chains should increase investment, home working should reduce investment.
  • UK consumer price inflation was boosted by clothing and fuel prices. Furniture prices also increased (an area where consumers have been spending accumulated savings). Producer prices remain negative, and low inflation is likely to remain. Final July Eurozone consumer prices are due.

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