Ahead Today
G3: Eurozone CPI
Asia: China 1-year loan prime rate, Bank Indonesia policy rate
Market Highlights
President Trump widened his steel and aluminum tariffs to include more than 400 types of consumer items that contain the metals. This new tariff inclusion list was posted by US Customs and Border Protection over the weekend and officially appeared in the Federal Register on Tuesday, and as such providing little notice and time in advance for companies and supply chains to adjust effectively to these changes. The new items contain a whole host of products presumably containing steel or aluminum, including auto parts, chemicals, plastics, furniture components, wind turbines, bulldozers, and even fire extinguishers. While it is true that the 50% tariffs should in theory only cover the metal components of these additional imports, the additional compliance cost of tracking the inputs for these products, coupled with the possible knock-on impact to upstream manufacturing inputs could argue for greater price pressures in the US moving forward. There are still many details that are still not known, including importantly whether some of these products will replace existing USCMA exemptions and stack on top of existing tariffs. The broader takeaway to our mind is that neither existing tariff exemptions nor sectoral tariffs are set in stone, and so from a forecasting and planning perspective one should expect continued and elevated trade policy uncertainty moving forward.
For Asia, the export data for July has so far been quite decent, including the data out from Malaysia yesterday with exports rising 6.8%yoy. Nonetheless, our suspicion – and expectation moving forward – is that this will start to moderate more meaningfully in August reflecting the imposition of tariffs and as payback from the front-loading manifests.
Today, we will have Bank Indonesia policy rate and PBOC’s 1-year loan prime rate decisions. We expect BI to keep rates on hold at 5.25%, but continue to expect a dovish tone and guidance from BI, with the central bank likely taking any further opportunity afforded by both Fed rate cuts and also a more stable Rupiah to cut rates to support the Indonesian economy. We expect BI to cut its policy rate to 5.00% by end-2025, with a terminal rate of 4.50% to be reached by 2Q2026 (see IndonesiaPulse: Rupiah resilience expected despite trade headwinds). Meanwhile, we do not expect PBOC to cut the loan prime rate in the policy decision today, but continue to see further ahead another 30bps cuts in PBOC’s 7 day reverse repo rate in this cycle. (see ChinaPulse: A broad-based weakness in July data crystalises the stress in the economy).
