Any hopes of winding down quietly for the long weekend have been dashed after a surge of activity in the markets this afternoon - and not due to the main scheduled event with Fed chair Powell’s speech sliding into the background in terms of importance after some fresh geopolitical  developments. First off, China announced a new round of retaliatory tariffs on US products. The levies will apply to $75B of goods and range from 5-10% starting on September 1st. The most eye catching was a 10% tariff on US crude oil products, 5% on soybeans and the resumption of 25% tariffs on US autos from December 15th. This caused some weakness in the equity markets and the timing ahead of the Powell speech and G7 was  conspicuous to say the least.   

A text speech from Fed chair Jerome Powell had an overall tone that could be described as pretty balanced and fairly neutral. Key lines from the text were that the Fed “will act as appropriate to sustain the expansion” and that the 3 weeks since the last meeting were “eventful”. There was no mention of the “mid-cycle adjustment” that roiled markets last time out and this speech seems to be almost deliberately neutral, possibly offering little by the way of firm conviction in light of the recent China tariff news. In terms of market reaction it was  a bit of a mixed bag with yields ticking lower along with the USD while stocks moved off their recent lows. 

However, not long after this Trump embarked on an incredible attack on China via social media with the tone and content of his messages extremely strong even by his own lofty standards. The markets had recovered most of the earlier losses on the China news around half an hour after Powell’s speech but Trump’s remarks have sent shockwaves through the market and dashed any hopes of a de-escalation on the trade front anytime soon. 

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