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Riskier assets once again found themselves on the back foot as Trump’s threat to impose another round of tariffs on China dampened the positive mood from the past few days.

Adding more jitters to the mix is the 20% slide in the Argentinian peso’s value, which put the spotlight back on troubles in emerging markets.

  • Canadian GDP flat in June vs. estimated 0.1% uptick
  • Canada’s economy expanded 2.9% in Q2 vs. 3.1% consensus
  • U.S. core PCE price index up 0.2% as expected in July, 0.1% previous
  • U.S. personal spending up another 0.4%, personal income increased 0.3% as expected
  • U.K. GfK consumer confidence ticked up from -10 to -7
  • Trump to announce tariffs on $200B Chinese goods by next week?
  • Trump also threatens to withdraw U.S. from WTO
  • Fitch to update its credit rating on Italy

Major Events/Reports:

Trump revives trade tensions

Just when it seemed this week was shaping up for a happily-ever-after when it comes to trade drama, U.S. President Trump brought tensions back to the table in reminding that they’re ready to slap another set of tariffs on China.

Sources familiar with the matter shared that the POTUS has instructed his aides to impose higher duties of 25% on $200 billion worth of Chinese goods by next week. This would include items like home building supplies, technology products, bicycles and apparel.

In an interview with Bloomberg later in the session, Trump also said that he can pull the U.S. out of the World Trade Organization (WTO) if “they don’t shape up.”

Downbeat Canadian GDP

The Loonie paused from celebrating NAFTA developments as it took hits when the Canadian monthly GDP disappointed. The economy neither expanded nor contracted in June versus analysts’ expectations of a 0.1% growth figure.

Still, this was enough to keep growth at 2.9% for Q2, faster than the 1.4% expansion logged in the previous quarter but a couple of notches lower than the forecast of 3.1% GDP.

On a more positive note, exports chalked up an impressive 12.3% jump for the quarter, its steepest pace of growth since 2014. On the flip side, business investment slowed to just 1.5% which is its slowest gain since 2016.

U.S. data in line with forecasts

Uncle Sam’s latest spending and inflation reports managed to hit their marks, still keeping Fed tightening expectations mostly supported.

The core PCE price index, which is said to be the central bank’s preferred inflation measure, posted a 0.2% uptick as expected versus the earlier 0.1% gain. This brings the year-over-year figure from 1.9% in June back to 2.0% in July, marking the third time that the index has hit the Fed’s target so far this year.

Personal income rose 0.3% also as expected but this was slower compared to the earlier 0.4% gain while personal spending posted another 0.4% increase. Number crunchers say that this points to a strong start for consumer spending during the third quarter.

Risk aversion and profit-taking

A combination of month-end profit-taking and risk-off flows from trade jitters led equity indices to snap their winning streaks for the week.

  • Dow 30 index is down 137.65 points to 25,986.92 (-0.53%)
  • S&P 500 index fell 12.91 points to 2,901.13 (-0.44%)
  • Nasdaq is down 21.32 points to 8,088.36 (-0.26%)

Gold continued to retreat, presumably on a bit of dollar strength, while crude oil surprisingly ticked higher. Perhaps the commodity stayed supported thanks to the reduction in EIA stockpiles reported yesterday and the fact that Iran’s exports are sliding due to sanctions.

Major Market Mover(s):

JPY

Resurfacing trade tensions propped up the lower-yielding yen while traders seemed hesitant to pile on dollar longs.

USD/JPY retreated from 111.57 to the 111.00 mark, EUR/JPY dipped from 130.52 to 129.51, GBP/JPY fell back to 144.50, and AUD/JPY sank to a low of 80.49.

NZD

The Kiwi found itself behind the pack, possibly on the return of dollar strength and Fonterra’s milk forecast downgrade. Keep in mind that this higher-yielding currency has been most vulnerable among its peers, owing to the RBNZ’s not-so-upbeat policy bias.

NZD/USD sank from .6667 to a low of .6636, NZD/JPY tumbled from 74.30 to a low of 73.67, EUR/NZD popped up to a high of 1.7582, GBP/NZD advanced to 1.9580, and AUD/NZD is up to 1.0925.

Watch Out For:

  • 11:30 pm GMT: Tokyo core CPI y/y (no change from 0.8% expected)
  • 11:30 pm GMT: Japan’s preliminary industrial production (0.3% rebound expected, -1.8% previous)
  • 1:00 am GMT: Chinese official manufacturing PMI (dip from 51.2 to 51.0 expected)
  • 1:00 am GMT: Chinese official non-manufacturing PMI (dip from 54.0 to 53.8 expected)
  • 1:30 am GMT: Australia’s private sector credit m/m (another 0.3% uptick expected)