Wait-and-see as tariffs and payrolls loom

Waiting for tariffs and payrolls

We endured another lackluster trading session in Asia with markets in wait-and see mode ahead of the double header of US non-farm payrolls data and the implementation of the first round of US tariffs on $34 billion worth of Chinese imports. Tariffs are scheduled to be introduced at 12.01am in Washington, the US Trade Representative’s office had confirmed on Tuesday. China stands ready in the wings to impose retaliatory duties immediately.

The trade war is finally upon us

FOMC minutes also mention trade wars

On digesting the minutes of the last FOMC meeting, investors latched on the discussion of how trade tensions could disrupt the solid growth trajectory outlook. With broad support for gradual rate hikes, there was also some debate about how many more rate increases could be justified to keep the economy rolling along at a stable pace. We know from comments since the meeting by Fed chairman Powell that he thinks another 100 bps would be needed to bring the stance to neutral rather than accommodative.

GBP/USD – British pound quiet ahead of FOMC minutes

GBP underperforms

Looking at the individual currencies, GBP was an underperformer following headlines late yesterday that the UK Brexit secretary and German Chancellor Merkel viewed Theresa May’s customs plan as unworkable. AUD continues to struggle to maintain a foothold above the 0.74 level versus the US dollar as the cloud of tariff wars and the implications for the nations’ exports hangs over the commodity currency.  Once again, the FX pair is attempting a push through this level, currently at 0.7405. Gold has difficulties in gaining any traction as a safe haven in these troubled times, succumbing to the US dollar’s continued strength.

GBP/USD Daily Chart

Source: Oanda fxTrade

Non-farm payrolls in the spotlight

Before we get to the tariff deadline, we have a host of US data to get through. The monthly lottery of US non-farm payrolls will garner the most attention with estimates suggesting a slight downward shift in June to 195k from May’s stellar 223k number. It is interesting to note that the employment index in the ISM report showed a modest slide to 56.0 from 56.3 in the previous month, which could infer a lower number. The unemployment rate is slated to stay unchanged at an 18-year low of 3.8% while average hourly earnings look to maintain May’s growth of 0.3% m/m.

Aside from the US data, we can expect UK’s Halifax house prices and a data dump from Canada including May’s trade data, June’s employment data and the Ivey purchasing managers index.

For a detailed list of all of today’s economic events, check out our economic calendar at www.marketpulse.com/economic-events/

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