US Tariff delay sends shockwaves through the markets

Summary:

• US Treasury announce delay to 10% tariffs on some products

• Stocks jump and precious metals tumble in response

• US inflation rises. CPI Y/Y : +1.8% 

• UK wage growth hits 11-year high; Polls show support for Boris

News that the US Treasury will remove some Chinese products from the 10% tariff list based on "health, safety, national security and other factors" has caused some large moves in recent trade with risk-assets surging and safe-havens in decline. The US500 (+1.6%) is up over 50 points since the news broke while USDJPY has gained in excess of 100 pips. After earlier reaching its highest level in 6 years Gold has tumbled and now trades back below the $1500 mark; lower by 1.7% on the day. 

For July CPI Y/Y rose to +1.8% vs +1.7% expected, up from 1.6% previously. The core measure also topped consensus forecasts with an ex food and energy reading unexpectedly rising to 2.2% Y/Y, against an expected unchanged reading of +2.1% Y/Y. While the Fed’s preferred gauge of inflation, the PCE Core, remains well below the 2.0% target the core CPI is above it and if this persists it could become a problem for the Fed. Looking more closely at the release the drop in wage growth could be seen to suggest that there’s a pullback due in inflation, with both the real average hourly (+1.3% Y/Y vs +1.5% Y/Y) and weekly earnings (+0.8% Y/Y vs +1.2% prior) figures dropping.  

While a tick up in the unemployment rate for the past quarter may lead to some negative headlines, the latest look at the UK labour market continues to show a surprisingly healthy level of strength. The employment rate of 76.1% is the joint-highest on record since records began in 1971 but the best news came on the earnings front. Workers continue to see their real wages rise with the latest figures showing average earnings outstripping inflation, as measured by CPI, for the 10th month in a row. The average earnings for the past quarter in annualised terms came in as expected at 3.7%, up from 3.5% prior which itself had been revised up from 3.4%. Stripping out bonuses the figures were even better with a 3.9% rise, topping forecasts for a 3.8% increase.  

Speaking of Brexit, there have been a couple public polls published in the past 24 hours that are attracting attention. The most surprising is a ComRes/Telegraph survey that suggests a majority support proroguing parliament to deliver Brexit. This looks like the current strategy of new PM Boris Johnson and not only has it got more than 50% support according to this poll, a whopping 89% of respondents also believe that MPs ignore voters on Brexit.