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Macro Watch

Trade tensions persist; Brexit talks resume; Central bankers descend on Jackson Hole

Home / Perspectives / Macro Watch – Trade tensions deepen; Brexit talks resume; Central bankers descend on Jackson Hole

> YOUR GUIDE TO THIS WEEK'S BIG ECONOMIC EVENTS

The US Department of Commerce will host public hearings on the proposal to impose a new round of tariffs on roughly $200bn in Chinese goods, Brexit talks are back on, and the annual economics retreat at Jackson Hole, Wyoming, gets underway on Friday.

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US-China trade tensions will remain in the spotlight this week, as the US Department of Commerce begins public hearings on a new round of proposed trade measures that target $200bn of Chinese imports – which would be subject to a 10% tariff (or higher, judging from recent threats). The proposed list includes a 23% share of consumer goods, implying that, if imposed, new tariffs would have a bigger impact on US consumers than the previous rounds. The deadline for the submission of post-hearing rebuttal comments is 30 August, which means new tariffs could be imposed as early as September. However, a delegation from China’s Commerce Ministry will visit the US to resume low-level talks in late August. Meanwhile, the next round of US-EU trade talks will get underway. It follows an agreement between US President Donald Trump and European Commission President Jean-Claude Juncker in late July to put any new tariffs on hold while talks between the pair were ongoing. Both parties are now exploring alternative solutions, most notably, negotiating a new trade deal. However, this approach requires time and considerable diplomatic efforts, and its chances of success in the medium term are unclear. Across the Atlantic, Brexit talks resume ahead of the informal EU Leaders Summit in Salzburg on 20 September – which marks the next key deadline for negotiations. In Turkey, the religious holidays this week might offer some temporary respite.
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The minutes from the US Federal Reserve’s last monetary policy meeting should not contain any surprises: FOMC members should sound upbeat about the US economy’s prospects, while also acknowledging the risks associated with trade uncertainty. The Fed is expected to continue to endorse a gradual normalisation process.

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Flash estimates of the Purchasing Managers’ Index (PMI) for the eurozone, Japan and the US for August should confirm two themes: growth stabilisation and desynchronization. In July, the surveys revealed a loss of momentum in economic activity across most developed and emerging markets. In aggregate, the surveys remained close to levels recorded last year, but they continued to show a geographical divergence as the US outperformed the rest of the world again. Elsewhere, the Jackson Hole Economic Symposium gets underway in Wyoming. The theme of this year’s symposium is Changing Market Structure and Implications for Monetary Policy, but the impact of trade tensions on monetary policy will undoubtedly be a source of debate.
Friday Icon

Japanese consumer price inflation (CPI) is expected to inch up in July after the release of regional data showed that Tokyo’s core CPI edged up to 0.5% last month. Importantly, a significant improvement in wage inflation supports expectations of a gentle increase in CPI going forward. In June, Japanese core CPI inflation – excluding fresh food and energy – came in at 0.2%, having trended downwards for H1.

> CHART OF THE WEEK

Chinese activity points to an ongoing slowdown in July
Macro Watch Chart 17 August
Source: National Bureau of Statistics of China as of August 2018

Chinese hard data on economic activity came in weaker than expected in July. In particular, annual growth of fixed asset investments (FAI) declined to 5.5%, compared to 6.9% in H1 2018, reflecting weakness in infrastructure FAI, which was probably due to recent deleveraging measures. Growth should stabilise towards the end of the year as fiscal and monetary policies have become more supportive in the face of downside risk from trade tensions with the US.

> WHAT WE’RE READING RIGHT NOW

The effects of China’s retaliatory tariffs on American companies and workers, mis-measuring productivity, and the impact of Brexit on the EU are among the interesting reads that you may have missed.

China's $60bn tariff announcement
The Peterson Institute considers the impact from China’s proposed retaliatory tariffs to the Trump administration’s additional measures, which target $200bn of Chinese imports.

Read now >

Conventional measures pose the wrong productivity question
In a Financial Times op-ed, Diane Coyle, professor of public policy at the University of Cambridge, argues that productivity may have been underreported because traditional measures exclude intangibles and intermediate output.

Read now >

The long-term impact of Brexit on the European Union
According to the IMF, real output for the EU-27 would be 0.2% lower in the long run if the UK and EU settled on a standard free trade agreement than under a no-Brexit scenario.

Read now >