Global financial markets made a subdued start to the week, with US equity markets closed on Monday for the Labor Day holiday. Meanwhile, escalating tensions between the US and Iran over the weekend provided support for oil prices, with Brent crude rising to just under $98 per barrel adding to inflation concerns. Asian equity markets were more resilient, supported by gains in technology stocks, particularly semiconductor companies in Tokyo and Seoul.
In Europe, German industrial production unexpectedly contracted in July, weighed down by a sharp decline in automotive manufacturing. Output fell by 1.1% month-on-month, largely driven by a 9.2% drop in vehicle production. According to the German Automotive Association (VDA), this was the result of a multi-week production shutdown across parts of the industry. Despite a recent improvement in factory orders, economists do not expect this to translate into stronger industrial output until the fourth quarter.
In the UK, the British Retail Consortium (BRC) reported a slowdown in retail sales growth during August as the boost from summer spending linked to record temperatures began to fade. Total retail sales increased by 0.7% year-on-year, down from 1.3% in July, while like-for-like sales growth, which adjusts for changes in retail floor space, slowed to 0.5% from 1.0% the previous month.
Tariff wars have reared up again after Canada slapped billions of dollars of retaliatory tariffs on American goods, after talks with the US administration collapsed. The former trade allies have turned foes, with President Trump turning up the heat, and the latest measures are likely to add another layer of uncertainty for businesses and consumers. Canada’s retaliatory tariffs on around $20 billion of US goods came into effect yesterday, with duties ranging from 15% to 50%.
Investors digested the latest trade data from China, which highlighted the continued resilience of the country’s export sector. Exports rose 25% year-on-year in August, accelerating from 23.9% in July and broadly matching market expectations. The strong performance was supported by robust technology exports, reflecting sustained global demand for China’s higher-value manufacturing products.
On a year-to-date basis, exports have increased 19.3% year-on-year to $2.92 trillion USD. External demand remains firm, particularly across China’s key export growth sectors. Shipments to ASEAN economies continue to be a notable bright spot, while exports to the US have recovered significantly and now stand just 5% below their pre-‘Liberation Day’ level.
The strength in China’s export performance underscores the country’s ability to maintain market share despite ongoing geopolitical and trade-related uncertainties. However, whether the rebound in exports to the US becomes a source of friction remains to be seen, particularly ahead of the anticipated meeting between President Xi Jinping and Donald Trump in the coming weeks.
Still to come this week, the European Central Bank’s interest rate decision is due on Thursday, 10 September. Following a modest rate hike in June, and with inflation risks remaining tilted to the upside, markets expect policymakers to raise rates by a further 25 basis points, taking the deposit rate to 2.50%. Markets will be closely watching the US CPI data due at the end of the week. The release is expected to be a key input into the Federal Reserve’s assessment of inflationary pressures and the appropriate path for interest rates ahead of its September meeting.
Nicola Tune, Portfolio Specialist
