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Trump’s trade war starts to take hold

While Trump is positive about a possible trade deal with the UK post Brexit, US manufacturing is losing steam.

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Manufacturing sectors across the globe yesterday, 3 June showed the ongoing US-Chinese trade war is starting to rub off. Purchasing Manager’s Index (PMI) data for May revealed that confidence contracted in Canada (49.1), the Eurozone as a whole (47.7), Germany (44.3), Italy (49.5) and the UK (49.4). Meanwhile, the US and China posted positive numbers, 50.5 and 50.2 respectively. That said, the US figure is the worst performance since 2009. A slowdown in manufacturing will have a negative impact on growth.

A drop in US manufacturing caused the Dollar to decline while calls for an interest rate cut grew louder. The Fed funds futures, which predict the path of US interest rates, jumped from 20 per cent to 68 per cent chance over the past week in expectation that the Federal Reserve could cut rates in July. Market participants are also predicting two further rate cuts before the start of 2020.

Stock markets also felt the pressure as investors hunted for yield and safer havens, with Gold, Swiss Franc and Japanese Yen making gains. The Euro had a positive day too, having climbed above 1.1250 against the Dollar for the first time since April.

Today the Eurozone will release the latest Consumer Price Index (CPI) inflation data. It is expected to show a rapid decline in inflationary pressure across the single bloc following a substantial drop in German, French and Spanish CPI last week. Ahead of the European Central Bank’s meeting on Thursday, 6 June the concern for the Euro will be that if this release misses the 1.3 per cent forecast, it will cause the ECB to turn more dovish and the single currency will give up the gains it made yesterday.

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