Tariffs 'Я US

4 minute read


Friday's US economic data were mostly quite similar to the numbers predicted by analysts. Personal income increased by 0.5% in April while personal consumption expenditures rose 0.3%. The Chicago purchasing managers' index increased by 1.6 points to 54.2 in May but the ISM noted that employment was the "softest since October 2017". Michigan University's consumer sentiment index failed to match up to its provisional estimate, falling two and a half points to 100.0.

Those numbers were not the USD's problem; it was the administration's mushrooming tariff blitz that worried investors. Hard on the heels of the Mexico sanctions the White House said it would remove India and Turkey from its list of developing countries and would end their preferential tax treatment. Investment bank Goldman Sachs "revised up its expectations of an escalation to US trade wars" and revised down its forecast for second half growth by around 0.5 percentage points to 2%. At the same time, financial futures pricing was indicating two rates cuts by the Fed before the end of the year. The USD was weakest among the majors on Friday.


The euro was on average almost unchanged against the other premier division currencies. It strengthened by 0.2% against the USD. This morning's manufacturing sector purchasing managers' index readings were there or thereabouts: Germany, France and pan-Euroland were in line with forecasts at 44.3, 50.6 and 47.7 respectively. The only one to beat analysts' predictions was Italy, where the index rose from 49.1 to 49.7.

In the aftermath of the previous week's European elections Berlin felt some political heat. German chancellor Angela Merkel's junior coalition partner, the SDP, lost its leader with the resignation of Andrea Nahles. Ms Nahles took the bullet for her party's poor showing at the European elections. Meanwhile the German Greens have overtaken Ms Merkel's CDU to top the opinion polls. 


Neither oil prices nor the Canadian economic data were of much help to the Loonie. WTI crude fell 4.2% to $53.2. It is close to a four-month low, down by 19% from its April highs. The industrial product and raw materials price indices did not bode well for industry, with factory gate prices rising by 0.8% in April while raw material costs grew 5.6%. Gross domestic product grew only 0.1% in the first quarter, the same as in Q418.

Despite the data, the oil price and escalating trade tensions, investors tended to prefer the CAD to the USD. It is 0.2% higher on the day.


This morning's manufacturing sector purchasing managers' index came in at a 34-month low of 49.4, more than three and a half points down from April. There was surprisingly little reaction from sterling and it is 0.2% firmer on the day. Clearly investors had been prepared for a sub-50 reading in the aftermath of March's rush to stockpile ahead of (what was then) the March 29 Brexit deadline. Markit's report confirmed that this was indeed what happened: "Stockpiling activity halts following Brexit date delay".

The UK government now has until October 31 to organise itself for Brexit. It is filling the idle hours with a contest to decide who will follow Theresa May as leader of the Conservative party and prime minster of the United Kingdom. There are now 13 candidates. On Friday the US president named one of them, the US-born Boris Johnson, as his "excellent" nominee for leader of the Conservative party. He also advocated a no-deal Brexit and said a trade deal with the US would leave Britain better off because it is "the number one country by far".


The Ministry of Finance's survey of corporate capital spending showed it rising by 6.1% in the first quarter. It was bigger than the 5.7% increase reported for Q418 but below the forecast 11.6% rise. After a tenth straight quarter of gains, analysts doubt the upward trend will continue as trade tensions between the United States and China intensify, igniting risks to the global economy.

Although there was no stampede into the safe-havens they were in steady demand as a result of trade and growth anxiety. The JPY was the leader among the major currencies, strengthening by 0.5% against the USD.

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