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Trade tariffs start to bite

July 2018

Some US businesses have “scaled back or postponed” plans for capital spending amid mounting concern over the potential consequence of President Donald Trump’s controversial new trade tariffs. According to the minutes from the FOMC’s June meeting, concerns appear to be particularly pronounced in the steel and aluminium industry and the agricultural sector. 

  • The US economy grew by 4.1% YoY during Q2 – its most rapid rate since Q3 2014
  • The technology sector had a choppy month
  • Every industry sector in the S&P 500 Index posted a gain during July

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Some US businesses have “scaled back or postponed” plans for capital spending amid mounting concern over the potential consequence of President Donald Trump’s controversial new trade tariffs. According to the minutes from the Federal Open Market Committee’s (FOMC’s) June meeting, concerns appear to be particularly pronounced in the steel and aluminium industry and the agricultural sector. Meanwhile, President Trump tweeted: “Tariffs are the greatest!” during the month, and went on to say: “Either a country which has treated the US unfairly on trade negotiates a fair deal, or it gets hit with tariffs.” 

“Tariffs are the greatest!” President Donald Trump”

In his testimony to the US Senate during July, Federal Reserve (Fed) Chair Jay Powell remained positive towards the outlook for the US economy, highlighting ongoing strength in the labour market, higher post-tax incomes and general optimism amongst consumers. Nevertheless, he struck a cautionary note towards the impact of the escalating trade war. 

The Dow Jones Industrial Average Index rose by 4.7% during July, while the S&P 500 Index climbed by 3.6%. The technology sector experienced sharp falls towards the end of the month following disappointing second-quarter earnings releases from Facebook and Twitter. Nevertheless, investors were cheered by strong earnings from Apple and the technology-heavy Nasdaq Index ended July 2.2% higher.

Every industry sector in the S&P 500 Index posted a gain during July – a feat that was last achieved in November 2017. Having been the worst-performing sector last month, industrials was the best performer in July. Health care, financials and consumer staples also performed strongly. The weakest performers were real estate, information technology, and energy. So far in the second-quarter earnings season, 80% of the companies that have reported have beaten forecasts, according to S&P Dow Jones Indices. Looking ahead, however, leading car manufacturers General Motors, Ford and Fiat Chrysler downgraded their earnings forecasts during July, citing the impact of the tariffs. 

The US economy expanded at an annualised rate of 4.1% during the second quarter of 2018. This represented its most rapid growth rate since the third quarter of 2014. Activity was driven by higher consumer spending and by an increase in export activity ahead of the introduction of the new trade levies. First-quarter economic expansion was revised up from 2% to 2.2%. Core inflation rose by 2%, stoking expectations of further tightening in monetary policy. 


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