The latest escalation in the US-China trade war is likely to dominate investor attention this week, and a fresh batch of data will give markets more insight into the economic impact of the conflict. The markets will also monitor the gathering of Western leaders at the G7 Summit during major divisions in trade, climate change, exchange rates, government spending, Brexit and deals with China, Iran and Russia.
Here’s what you need to know to start your week.
1. Commercial Eye for an Eye
China said Saturday it strongly opposes Washington’s decision to impose additional tariffs on Chinese goods worth $ 550 billion and warned the US of the consequences if it does not end its “wrongdoing”.
The comments came after US President Donald Trump announced an additional 5% duty on $ 550 billion in Chinese imports at the latest escalation of the trade war between the two largest economies in the world.
A trade war has turned the financial markets, with bond markets signaling a recession.
Trump linked his attacks with China and the Federal Reserve together on Friday, tweeting that the Fed is not helping with easier policies and asking “who is the bigger enemy” – Chinese President Xi Jinping or Fed President Jerome Powell.
2. The G7 summit
French President Emmanuel Macron hosts the G7 summit in Biarritz from 24 to 26 August and set the stage for the climate change event. But on this and most other topics, Trump is an outsider. Locked in a trade war with China, he emphasized the idea of tariffs on imports from the EU and elsewhere, and his proposal to readmit Russia to the G7 met with opposition from other member states.
Macron’s new tax on US tech companies has also irritated Trump, who has threatened payback on French wine exports.
Another problem investors will see is whether fiscal incentives, above all in Germany, are mentioned, something over which Chancellor Angela Merkel hesitated.
3. US economic data
The second reading of the US Gross Domestic Product on Thursday largely contains data that is already clear – consumer spending, business investment and inventory. The initial estimate showed that the US economy grew at an annual rate of 2.1% in the second quarter, slowing down from 3.1% in the first three months of the year.
Data on durable goods will be published today and will give an idea of US manufacturing and capital expenditures. Thursday’s trade data will show where the deficit is with China in July. Investors will also be able to analyze consumer confidence reports, expect home sales and the PCE price index, the Fed’s preferred inflation indicator.
4. Euro area inflation
Amid concerns that the German economy may go into recession in the third quarter, the Ifo Business Climate Survey will be closely monitored today.
A preliminary reading of euro area inflation at the end of the week is expected to highlight the need for more measures to drive up prices initially. The figures after the last meeting of the European Central Bank were unclear and accounts from the July 25 meeting stressed that the bank was preparing to release support for the economy.
A weak reading of inflation is likely to spark the debate about the need to change the ECB’s inflation target in favor of a more flexible target that would open the door to even greater incentives. The data may also reignite calls for Germany to start spending more.
5. Corporate reports
Investors will get a fresh look at retail earnings this week as Best Buy (NYSE: BBY) and Dollar Tree (NASDAQ: DLTR) traders report quarterly results.
Strong retail sales and revenue were a bright spot for the US economy this month, helping to ease fears of recession risk amid mounting trade tensions and signs of slowing global growth.
Trader Aleksandar Kumanov