Trump drops another tariff tornado, hitting big trucks and pharma

EU mid-market update: Trump drops another tariff tornado, hitting big trucks and pharma; US PCE in spotlight.

Latest round of tariff threats by Trump see 100% on branded/patented pharmaceuticals, unless the company builds a US manufacturing plant, 25% on heavy-duty trucks, 50% on kitchen cabinets/bathroom vanities and 30% on upholstered furniture. Initially EU pharma sector and truck sector sold off but pharma stocks soon reversed into green as TACO trade plays out and analysts see Swiss pharma impact limited due to strong US footprints. Truck makers stay lower (Daimler -3%, Traton -2%). As is typical, details are yet to be fleshed out. Separately, WSJ reported Trump admin plans to reduce semi-conductor imports.

- China released a two-year plan to stabilize petrochemical sector and also issued plan to accelerate use of AI in transport sector.

- UK gilts surged to three-week highs after weak demand at auctions and worries about fiscal policy.

- US dollar reversed after touching a three-week high after Trump announced the tariffs.

- Oil headed for a weekly gain as Russia extended fuel-export bans after refinery strikes. Brent ticked to $68.7, WTI $65.1, up 3% and 4% on the week. Gains capped by weak macro-outlook and new US tariff threats.

- Asia closed mixed with KOSPI underperforming -2.5%. EU indices +0.3-0.7%. US futures -0.2% to +0.1%. Gold +0.1%, DXY -0.1%; Commodity: Brent +0.1%, WTI +0.1%; Crypto: BTC -1.7%, ETH -2.2%..

Asia:

- South Korea Sept Manufacturing Business Survey: 93.4 v 93.3 prior.

- New Zealand Sept ANZ Consumer Confidence: 94.6 v 92.0 prior.

- Japan Sept Tokyo CPI Y/Y: 2.5% v 2.8%e; CPI (ex-fresh food) Y/Y: 2.5% v 2.8%e.

- China said to ask leading semi-conducting chip manufacturers to list domestically, including shifting Hong Kong planned listings to China mainland instead (including for DRAM-maker CXMT).

Europe:

- ECB's Cipollone (Italy) stated that ECB would act if inflation shifted significantly from 2%.

Americas:

- Fed’s Daly (non-voter): Inflation impact of tariffs hasn't been as large as forecast, but has had a bigger impact on the labor market; A little more rate cutting will be needed over time.

- Fed's Logan (non-voter): The time has come for a new benchmark rate; Fed funds connection is fragile and could break suddenly; For the moment, Fed funds rate remains a viable target.

- Bipartisan group made up of Treasury Officials and Ex-Fed back Cook in Supreme Court case; Warns of economic peril should Trump fire Cook; Urge Supreme Court to side with them.

- Mexico Central Bank (Banxico) cut Overnight Rate by 25bps to 7.50% (as expected) for its 10th straight cut (11th overall) under the current phase of its easing cycle.

Trade

- Trump first imposed a 25% tariff on all big trucks (>10K lbs) from Oct 1st. Applies universally, likely overriding previous trade deals with South Korea and Japan (TBD).

- Then Trump imposed 50% tariffs on all kitchen cabinets, bathroom vanities and associated products, from Oct 1st.

- Trump then topped it off with the much-anticipated pharma tariffs for imported drugs that had been threatened for months. Branded and patented drugs into the US will be charged a 100% tariff from Oct 1st (unless the importer is building their pharmaceutical manufacturing plant in America). [Note: Trump had over recent weeks and months threatened pharma tariffs of as much as 200% for imported drugs].

- Trump Admin said to have planned to reduce semi-conductor imports. Companies that don't keep an even ratio of imported and domestic chips would pay a tariff.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.3% at 552, FTSE +0.5% at 9255, DAX +0.4% at 23620, CAC-40 +0.5% at 7832, IBEX-35 +0.7% at 15240, FTSE MIB +0.2% at 4141, SMI +0.3% at 11921, S&P 500 Futures 0.0%]

Market focal points/key themes: European indices opened generally higher and remained upbeat through the early part of the session; markets digesting latest US tariff announcements; sectors leading the way higher include materials and financials; among lagging sectors are technology and health care; health care sector under pressure following US tariffs; automotive subsector impacted following tariffs on heavy trucks; Prosus to acquire La centrale; focus on US PCE price index later in the day; no major earnings expected in the upcoming Americas session.

Equities

- Consumer discretionary: InterContinental Hotels Group [IHG.UK] +3.0% (analyst upgrade); Brunello Cucinelli [BC.IT] -10.0% (reports circulated about misleading Russian operations which company denies, analyst downgrade).

- Industrials: Daimler Truck [DTG.DE] -7.0% to -8.0% (Trump announced 25% tariff on heavy-duty trucks); Traton [8TRA.DE] -2.5% to -3.0% (Trump announced 25% tariff on heavy-duty trucks).

- Utilities: Pennon Group [PNN.UK] -0.5% (trading update).

Speakers

- Swiss Economy Ministry noted of no details of announced Trump pharma tariffs were currently know

- European Commission said US tariffs on EU pharma remained capped at 15

- Hungary PM Orban commented that its domestic economy would be ruined without Russian energy. Saw no need to agree with US President Trump on Russian energ

- China Industry Ministry (MIIT) released a two-year plan for stabilizing growth in petrochemical and chemical industry. To stabilize petrochemical industry with 5% annual growth.

Currencies/fixed income

- USD held steady after President Trump announced new tariffs including the Pharma related ones. Greenback was just off recent multi-week highs supported by recent better-than-expected US economic data which questions the pace of Fed easing. Focus on upcoming PCE data in the US later in the session.

- EUR/USD at 1.1670 by mid-session. Hotter EU inflation expectation survey helping to stem Euro losses for the time being.

- USD/JPY was approaching the 150 neighborhood as Sept Tokyo CPI came in softer-than-expected

- 10-year German Bund yield at 2.78% and 10-year Gilt yield at 4.76% 10-year Treasury yield: 4.19%

Economic data

- (FI) Finland Aug House Price Index M/M: -0.3% v 0.0% prior; Y/Y: -1.9% v -1.1% prior.

- (SE) Sweden Aug Trade Balance (SEK): -8.9B v +3.6B prior.

- (DK) Denmark Aug Retail Sales M/M: 0.3% v 0.5% prior; Y/Y: 2.5% v 2.6% prior.

- (ES) Spain Q2 Final GDP Q/Q: 0.8% v 0.7% prelim; Y/Y: 3.1% v 2.8% prelim.

- 03:30 (CN) Weekly Shanghai Copper Inventories (SHFE): K v 105.9K tons prior.

- (TH) Thailand May Foreign Reserves w/e Sept 19th: $272.3B v $272.0B prior.

- (TW) Taiwan Aug Monitoring Leading Indicator: 30 v 29 prior.

- (AT) Austria Sept Manufacturing PMI: 47.6 v 49.1 prior (38th month of contraction)- (EU) Euro Zone Aug Consumer Expectation Survey: 1-year ahead CPI expectations: 2.8% v 2.5%e; 3-year ahead CPI expectations: 2.5% v 2.4%e.

- (IT) Italy Sept Consumer Confidence: 96.8 v 96.5e; Manufacturing Confidence: 87.3 v 87.5e; Economic Sentiment: 94.7 v 93.6 prior

- (RU) Russia Narrow Money Supply w/e Sept 19th (RUB):18.95 T v 18.88T prior.

Fixed income issuance

- (IN) India sold total INR320B vs. INR320B indicated in 2040 and 2065 bonds.

- (IT) Italy Debt Agency (Tesoro) sold total €7.25B vs. €6.0-7.25B indicated range in 5-year and 10-year BTP bonds (3 tranches).

- (IT) Italy Debt Agency (Tesoro) sold €1.5B vs. €1.0-1.5B indicated range in Apr 2034 Floating Rate Notes (CCTeu); Real Yield: % v 3.19% prior; bid-to-cover x v 1.59x prior.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2033, 2043 and 2050 Bonds.

- 06:00 (UK) DMO to sell £6.5B in 1-month, 3-month and 6-month bills (£1.0B, £2.5B and £3.0B respectively).

- 07:30 (BR) Brazil Aug Current Account Balance: -$5.4Be v -$7.1B prior; Foreign Direct Investment (FDI): $6.1Be v $8.3B prior.

- 07:30 (CL) Chile Central Bank (BCCh) Sept Minutes.

- 07:30 (IN) India Forex Reserve w/e Sept 19th: No est v $703.0B prior.

- 08:00 (MX) Mexico Aug Trade Balance: -$2.6Be v $0.0B prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (ES) Spain Debt Agency (Tesoro) announcement on upcoming issuance.

- 08:00 (IN) India announces upcoming bill issuance (held on Wed).

- 08:30 (US) Aug Personal Income: 0.3%e v 0.4% prior; Personal Spending: 0.5%e v 0.5% prior; Real Personal Spending: 0.2%e v 0.3% prior.

- 08:30 (US) Aug PCE Price Index M/M: 0.3%e v 0.2% prior; Y/Y: 2.7%e v 2.6% prior.

- 08:30 (US) Aug Core PCE Price Index M/M: 0.2%e v 0.3% prior; Y/Y: 2.9%e v 2.9% prior.

- 08:30 (CA) Canada July GDP M/M: +0.1%e v -0.1% prior; Y/Y: 0.7%e v 0.9% prior.

- 09:00 (US) Fed's Barkin.

- 10:00 (US) Sept Final University of Michigan Confidence: 55.4e v 55.4 prelim.

- 10:00 (US) Fed's Bowman.

- 11:00 (US) Sept Kansas City Fed Services Activity: No est v 4 prior.

- 11:00 (EU) Potential sovereign ratings after European close (Moody’s on Spain; Fitch on Spain and Sweden).

- 13:00 (US) Weekly Baker Hughes Rig Count data.

- 21:30 (CN) China Aug Industrial Profits Y/Y: No est v -1.5% prior; YTD Y/Y: No est v -1.7% prior.