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Markets watch for escalation of trade war fears

The Bank of England voted to keep rates unchanged at 0.5% on Thursday. The market was suprised as Andy Haldane hawkishly voted for a rate hike, taking the number of dissenters to three. The flip from the BoE’s chief economist made the vote 6-3 against the expected 7-2. This prompted a sharp boost in the chance of an August rate hike, currently standing at 70%, up from 50% pre-vote. In order for an August rate hike to become reality, UK data will need to continue improving to reflect the BoE’s belief that the Q1 slowdown was temporary. An improvement in Brexit sentiment will also need to be seen.

The markets continue to watch the as the potential risk of a trade war between the US and China grows. Deadlines for the tariff levels and other barriers to be announced are quickly approaching. It is expected US President, Donald Trump will announce another barrier on Chinese investments which would stop firms with at least 25% Chinese ownership from acquiring American companies which are involved in anything with ‘industrially significant technology.’

This would include companies which are involved in robotics, electronic cars and aerospace. Trump is also expected to announce ‘enhanced export controls’ which would restrict companies selling certain technologies to China. It appears that China is trying to deescalate the trade war. It is suggested they have no plans to retaliate against US companies which operate in China, as such a move would counter their goal of attracting foreign investment to the country.

There is a quiet start to the week with no high tier data on the economic docket. The Eurozone will be releasing the German Ifo Business Climate report, looking at the relative level of current business conditions as well as the outlook for the next six months. The index is expected to post 101.9. 

On Tuesday, two Bank of England MPC members are scheduled to speak. The first will be Jonathan Haskel, who will be testifying on his appointment before the Treasury Select Committee. The second is Ian McCafferty, who is due to speak about monetary policy at the Official Monetary and Financial Institutions Forum. Across the pond, the CB Consumer Confidence Report is expected to be released from the US, forecast to post 127.6. FOMC member, Raphael Bostic will be speaking in Alabama. 

The Bank of England will be releasing the semi-annual Financial Stability report, which looks at the conditions of the financial system and the potential risks to stability. BOE Governor Mark Carney will be giving a press conference on the report at its release. In the US, the Core Durable Goods Orders figure will be released, forecast to post 0.5%, down from 0.9% last month. The Pending Home Sales figure is also to be released, expected to post 1.1%, up from -1.3%. FOMC member, Randal Quarles will be speaking about financial regulation at the Utah Bankers Association Annual Convention.

Thursday will start with the market focusing on the Eurozone as the CPI figures are released from Germany, Spain and Italy. The German Prelim CPI is expected to drop from 0.5% previously to 0.2%. The Spanish Flash CPI is forecast to tick up to 2.2% from 2.1%, whilst the Italian Prelim CPI is expected to downtick to 0.2% from 0.3%. Across the pond, the US will be releasing their final GDP figure, expected to remain static at 2.2%.  FOMC member Raphael Bostic will be speaking about affordable housing and jobs at the Center for Working Families. Back in the UK, BOE Chief Economist Andy Haldane will be speaking about productivity growth at the Academy of Social Sciences Annual Lecture. After voting for a rate hike at the latest BOE policy meeting, the markets will be watching closely to what he says for any clues as to the reason behind the vote for a hike.

On Friday, the Eurozone are scheduled to release a raft of data. The first will be the German Retail Sales figure, which is expected to drop from 2.3% last month to -0.4% this morning. France will be releasing their prelim CPI figure which is forecast to post 0.1%. The latest reading of the flash CPI estimate is to be released. It is expected to uptick to 2% from 1.9%. Back in the UK, the Current Account reading will be released, expected to remain around the -18.2b level. The final reading of GDP will also be released, expected to post 0.1%. Across the pond, the core PCE Price Index, which is the Fed’s preferred reading for inflation, is forecast to tick up to 1.9% from 1.8%. The revised University of Michigan Consumer Sentiment will be released, expected to post 99.2.