The US president has threatened such tariffs on targeted sectors, including autos, and threatened to announce them at any moment. This news comes on the heels of some really bad economic reports. This week’s strong retail sales figures have rekindled fears that the US economy is headed in the wrong direction. Fortunately, the US administration seems to be leaning towards a more targeted approach, which would address many of the concerns about the impact on US growth.
Across the pond, European investor sentiment wasn’t lifted by the EMU PMI data that didn’t lift European spirits. At the same time, Turkish assets were experiencing a historic sell-off, leading to a government intervention. Just to recall, the day also brought a strengthening of the Polish zloty against the euro, EUR/PLN exchange rate moving below 4.175. In contrast, EMU yields were little changed.
Tariff Talk and Economic Signals
US president Donald Trump’s threats of new tariffs are being made in the context of economic indicators overall having been decidedly negative recently. Recent retail sales data underperformed expectations, leading some Federal Reserve members to suggest possible interest rate cuts around mid-2025. This economic background has raised the stakes for all the more attention on US data to come and US Federal Reserve officials’ talks.
The prospect of new tariffs, particularly those targeting specific sectors like automobiles, has raised concerns about potential impacts on trade and economic growth. The good news is that the president has recently signaled a more selective approach to implementing tariffs. This change has alleviated anxiety about the cumulative effect on US growth.
European and Turkish Market Reactions
Meanwhile in Europe, the EMU PMI figures did little to reassure investors about the sustainability of an economic rebound. As such, European markets moved not only negatively, but more so than the US. The disappointments in the EMU PMI data further fueled a palpable sense caution in the broader regional capital markets.
Turkish assets faced a tsunami of sell-off that the government had to step in to command and control the storm. The sell-off was dramatic enough that further steps were needed. This included proposals to even lower taxes on Turkish lira deposits to help prop up the currency.
Polish Market Developments
In Poland, the local zloty appreciated all day long, as the EUR/PLN rate approached the level of 4.175. This momentum came even as EMU yields ended the day little changed.
Here are some of the lessons learned courtesy of Iwona Duda of the Polish Monetary Policy Council. She doesn’t anticipate much movement in interest rates over the next few months. She emphasized the need for data dependent July inflation projections, a major driver of where potential future Cambridge rate cuts will land.