The German auto maker Daimler news last night where they cut earnings estimates due to the Chinese trade taxes is a sign that those impacted are not always who you think as supply chains crisscross everywhere. The taxes on Daimler is on the cars they make in the US (Alabama) that is then shipped to China. They said “Fewer than expected SUV sales and higher than expected costs, not completely passed on to the customers, must be assumed because of increased import tariffs for US vehicles into the Chinese market.” A European company of course was not the target of a Chinese tariff. The same can be said of the US tariff on Chinese semiconductors where US companies will end up paying the tax.
Notwithstanding all the tariff noise, French business confidence in June held at 106 in May as expected as did the manufacturing component. Macron has really changed the entire attitude of the French economy for the better. The CAC is the best performing stock market of the major European countries. MFGA.
The Swiss National Bank remained dovish with its deposit rate at -.75% and showed no indication that it would start to raise rates. They remained obsessed with the strength in the Swiss Franc. “In light of political uncertainty in Italy, we have since seen counter movement, particularly against the euro. The situation on the FX market thus remains fragile, and the negative interest rate and our willingness to intervene in the FX market as necessary therefore remain essential.” Because of this attitude, the SNB is trapped in not being able to raise rates until after the ECB does.
I’ve said this before but will again, whenever the downturn occurs in Europe in coming years, the region’s central banks having not normalized anything will have no effective resources to deal with it.
The Bank of England again dragged their feet on raising rates as they kept policy unchanged BUT importantly the Chief Economist of the BoE voted to raise rates. The vote was thus 6-3. On the reality that they are finally getting closer to a rate hike, the pound immediately reversed itself and is now up on the day. UK gilts are also selling off with the 2 yr yield jumping by 6 bps to .77%. Their next meeting in August and odds are 70% they hike.
INTRADAY MOVE in the POUND after 6-3 vote
The one day calm in China after the comments from the PBOC were short lived as the Shanghai comp sold off by 1.4% to the weakest level in two years. The H share index was lower by 1.2% and the Hang Seng was down by 1.4%. The yuan is also lower along with everyone else against the US dollar today.
The Philippines is another emerging market central bank that has had to raise raise rates to defend their currency and they did so again overnight by 25 bps. It’s the 2nd hike in three months.