Asian central banks in Indonesia and the Philippines look poised to follow the US Fed in raising interest rates again to support their currencies, as new US tariffs on $200 billion of Chinese goods, and talks of more to come, cast a shadow over markets
The week kicks off with the next round of US tariffs on $200 billion of Chinese products on Monday (24 September). China’s retaliatory tariffs on US products take effect at the same time, possibly setting in motion the next phase of US tariffs on $267 billion of imports from China.
As markets have long been pricing in the intensification of the US-China trade conflict, deliberations continue about the gravity of consequences on respective economies and the rest of the world. While we will hear more about this from the US Fed (the third rate hike this year to come with the Fed’s revised economic outlook), China's Purchasing Managers Index (PMI) for September may provide a glimpse of the impact on that economy. We anticipate both manufacturing and services PMIs to have ticked down from their levels in August, with new export orders and employment persisting as drags on the manufacturing side.
General market tone: Slight risk-on. Investors continue to react positively to the recent round of US-China trade tariffs with market players judging them to be less severe than initially anticipated. However, investors must be mindful that the US tariff jumps from 10% to 25% in only a few months down the line
US rates are going up, and tariffs are being slapped on, markets seem relaxed. We're not.