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Trump fuels currency war fears with Federal Reserve criticism – business live Trump threatens to put tariffs on all Chinese imports – business live
(35 minutes later)
Trump’s threat to launch a full-blooded trade war with China has alarmed investors.
US stock market futures are falling, suggesting that shares will drop when trading begins in three hours.
In London, the FTSE 100 is now in the red, down 30 points at 7652, having been slightly higher earlier.
NEWSFLASH: CNBC are now broadcasting their full interview with president Trump (they only released the snippet attacking the Federal Reserve yesterday).
The new top line? Trump is threatening to hit China with a new wave of tariffs, which would drive up the cost of ALL Chinese imports into America, worth around $500bn per year.
Trump told CNBC’s Squawk Box show that “I’m ready to go to 500”, if China doesn’t bow to America’s complaints about its trade policies.
He added:
I’m not doing this for politics, I’m doing this to do the right thing for our country..... We have been ripped off by China for a long time.”
Trump denied that he is acting maliciously towards China, saying:
“I don’t want them to be scared. I want them to do well...I really like President Xi a lot, but it was very unfair.”
So far, America has imposed 10% tariffs on $34bn of Chinese imports (which could soon rise to $50bn). Another $200bn of goods (including food, chemicals and consumer goods) could be hit by 10% levies in September.
So far, China has announced reciprocal tariffs on America’s first wave of penalties. However, it couldn’t retaliate if Trump “goes to 500”, as it only buys less than $200bn of US goods each year.
Trump says he's 'ready' to put tariffs on all $505 billion of Chinese goods imported to the US https://t.co/4vZUssv20x pic.twitter.com/mI5SFvKWaB
Donald Trump should blame himself, not the Federal Reserve, for the strengthening dollar, argues Craig Erlam of City firm OANDA.
Erlam writes that Trump’s recent tax cuts have stimulated the US economy, at a time when it was doing pretty well anyway......
It’s quite clear to most people that part of the reason for the Fed raising rates at the current pace is the tax reform measures passed at the end of last year, when the economy was already running hot.
This is also partially responsible for the dollar rising against other currencies, particularly the yuan and euro, which has suffered further as the President has sought to start a trade war with both. Trump is not one to accept responsibility for such events and now appears to be actively trying to push the blame onto others in a clear attempt to halt the rise in the greenback, the strengthening of which could weigh on the economy and soften the impact of the trade measures he is taking against other countries.
Reuters points out that Donald Trump has made several public comments about the dollar’s strength since taking office....something most US leaders have avoided.Reuters points out that Donald Trump has made several public comments about the dollar’s strength since taking office....something most US leaders have avoided.
Trump shoots from the hip on the dollar and Fed, territory most presidents in the modern era usually avoided. Nice graphic from @SaqibReports on Trump's often contradictory dollar comments. https://t.co/vME5vJbt2N pic.twitter.com/DgGJV6vVmkTrump shoots from the hip on the dollar and Fed, territory most presidents in the modern era usually avoided. Nice graphic from @SaqibReports on Trump's often contradictory dollar comments. https://t.co/vME5vJbt2N pic.twitter.com/DgGJV6vVmk
Back in the UK, the long task of fixing the public finances continues.Back in the UK, the long task of fixing the public finances continues.
New figures show that Britain borrowed £5.4bn to balance the books in June 2018, £800m less than in June 2017.New figures show that Britain borrowed £5.4bn to balance the books in June 2018, £800m less than in June 2017.
So far this financial year, the UK has borrowed £16.8bn; £5.4bn less than in the same period in 2017, and the lowest April-June borrowing since 2007 (before the financial crisis).So far this financial year, the UK has borrowed £16.8bn; £5.4bn less than in the same period in 2017, and the lowest April-June borrowing since 2007 (before the financial crisis).
Mike Jakeman of PwC reckons this gives the government some ammunition to cut taxes or boost spending in the autumn Budget.Mike Jakeman of PwC reckons this gives the government some ammunition to cut taxes or boost spending in the autumn Budget.
Long-term recovery in UK's public finances continued in June. Borrowing in April-June was £16.8bn, compared with £22.2bn last year. (Look at the light blue bars)Some wiggle room for Hammond likely in November budget. pic.twitter.com/LDHwFVS83zLong-term recovery in UK's public finances continued in June. Borrowing in April-June was £16.8bn, compared with £22.2bn last year. (Look at the light blue bars)Some wiggle room for Hammond likely in November budget. pic.twitter.com/LDHwFVS83z
Paul Donovan of UBS Wealth Management has a deliciously acerbic take on Trump’s attack on the Fed:Paul Donovan of UBS Wealth Management has a deliciously acerbic take on Trump’s attack on the Fed:
US President Trump signalled unhappiness with Federal Reserve rate increases. This was in a TV interview, not a tweet, so it is not official administration policy. The decline of global inflation in the past quarter century was nothing to do with globalization, and nothing to do with technology. It was due mainly to central bank independence. Challenging independence is high risk.US President Trump signalled unhappiness with Federal Reserve rate increases. This was in a TV interview, not a tweet, so it is not official administration policy. The decline of global inflation in the past quarter century was nothing to do with globalization, and nothing to do with technology. It was due mainly to central bank independence. Challenging independence is high risk.
The Fed, even when run by a lawyer rather than a properly qualified economist, is not likely to alter policy direction. The Fed should tighten because deficit-financed tax cuts at a time of strong growth are unnecessary and need to be offset. However, US President Trump’s recent consumer tax increases [tariffs] may slow the economy and reduce the need for rapid rate rises.The Fed, even when run by a lawyer rather than a properly qualified economist, is not likely to alter policy direction. The Fed should tighten because deficit-financed tax cuts at a time of strong growth are unnecessary and need to be offset. However, US President Trump’s recent consumer tax increases [tariffs] may slow the economy and reduce the need for rapid rate rises.
It’s important to emphasise that Trump’s criticism of the Federal Reserve is pretty unusual.It’s important to emphasise that Trump’s criticism of the Federal Reserve is pretty unusual.
The whole point of central bank independence is that interest rates can rise or fall without political interference. That prevents governments from slashing borrowing costs to get a pre-election boom, creating an inflationary spike, forcing rates to go up again, slowing the economy, creating a recession....The whole point of central bank independence is that interest rates can rise or fall without political interference. That prevents governments from slashing borrowing costs to get a pre-election boom, creating an inflationary spike, forcing rates to go up again, slowing the economy, creating a recession....
Bart Hordijk, market analyst at Monex Europe, says Trump is acting more like the leader of an emerging market economy when he declares that he’s “not thrilled” by US interest rate rises.Bart Hordijk, market analyst at Monex Europe, says Trump is acting more like the leader of an emerging market economy when he declares that he’s “not thrilled” by US interest rate rises.
Hordijk writes:Hordijk writes:
The US dollar sold off across the globe [after Trump’s attack] and the question on every FX trader’s mind is; is the US becoming the new Turkey?The US dollar sold off across the globe [after Trump’s attack] and the question on every FX trader’s mind is; is the US becoming the new Turkey?
“The answer seems, “no, but....”. The Turkish lira lost almost 30% of its value this year mostly because Turkish President Recep Erdogan is firmly set against higher rates (just like Trump) and is attacking the independence of the central bank (just like Trump). “The answer seems, “no, but....”. The Turkish lira lost almost 30% of its value this year mostly because Turkish President Recep Erdoğan is firmly set against higher rates (just like Trump) and is attacking the independence of the central bank (just like Trump).
Erdogan is notorious for criticising Turkey’s central bank, and calling for lower interest rates. Earlier this month he even put his son-in-law in charge of Turkey’s Ministry of Finance and Treasury. Erdoğan is notorious for criticising Turkey’s central bank, and calling for lower interest rates. Earlier this month he even put his son-in-law in charge of Turkey’s Ministry of Finance and Treasury.
Trump hasn’t reached that point (Jared Kushner has other duties, anyway). Hordijk says:Trump hasn’t reached that point (Jared Kushner has other duties, anyway). Hordijk says:
The big difference however is that the institutions in both countries widely differ and there are miles more of legal obstacles and checks and balances in place before Trump even gets close to have a direct say in the Fed’s interest rate policy.The big difference however is that the institutions in both countries widely differ and there are miles more of legal obstacles and checks and balances in place before Trump even gets close to have a direct say in the Fed’s interest rate policy.
Additionally Erdogan seems surrounded by a group of yes men, while Trump’s team sometimes still keep him in check, as evidenced by Deputy Press Secretary Sarah Sanders who went into damage control mode after the comments were made and reconfirmed Trump respects the independence of the Fed.Additionally Erdogan seems surrounded by a group of yes men, while Trump’s team sometimes still keep him in check, as evidenced by Deputy Press Secretary Sarah Sanders who went into damage control mode after the comments were made and reconfirmed Trump respects the independence of the Fed.
But even so, Trump’s decision to fire a warning shot at the Fed should worry the markets...But even so, Trump’s decision to fire a warning shot at the Fed should worry the markets...
After starting a trade war, giving tax hand outs to the rich that will likely blow up the US fiscal deficit and antagonizing NATO allies while befriending despotic leaders, this latest action of Trump further establishes the pattern of his capricious, often short term focus.After starting a trade war, giving tax hand outs to the rich that will likely blow up the US fiscal deficit and antagonizing NATO allies while befriending despotic leaders, this latest action of Trump further establishes the pattern of his capricious, often short term focus.
That in itself is a scary observation and an understandable reason why the dollar sold off.”That in itself is a scary observation and an understandable reason why the dollar sold off.”
President Trump has set “more cats among even more pigeons” with his comments about interest rates and the dollar yesterday.President Trump has set “more cats among even more pigeons” with his comments about interest rates and the dollar yesterday.
So says Kit Juckes, foreign exchange expert at French bank Société Générale.So says Kit Juckes, foreign exchange expert at French bank Société Générale.
Juckes doesn’t believe the Federal Reserve’s independence is now in doubt.Juckes doesn’t believe the Federal Reserve’s independence is now in doubt.
And as long as [Fed chair] Jay Powell & Co respond to a strong economy and easy fiscal policy with measured policy tightening, they aren’t going to send bond yields or the dollar down on their own.And as long as [Fed chair] Jay Powell & Co respond to a strong economy and easy fiscal policy with measured policy tightening, they aren’t going to send bond yields or the dollar down on their own.
However, he also expects more fireworks if China allows its currency to keep sliding:However, he also expects more fireworks if China allows its currency to keep sliding:
As long as the renminbi is falling in an orderly manner, there is little urgency for the Chinese authorities to counter it.As long as the renminbi is falling in an orderly manner, there is little urgency for the Chinese authorities to counter it.
Whether or not China is wittingly undertaking a depreciation policy, the question will increasingly be on investors’ minds as the slide deepens. And the Trump Administration is unlikely to keep quiet for long eitherWhether or not China is wittingly undertaking a depreciation policy, the question will increasingly be on investors’ minds as the slide deepens. And the Trump Administration is unlikely to keep quiet for long either
The Trump administration is determined to push down their currency, says Neil Wilson of Markets.com.The Trump administration is determined to push down their currency, says Neil Wilson of Markets.com.
A cheaper dollar would help US companies compete abroad, a key plank of Trump’s attempt to make trade ‘fairer’.A cheaper dollar would help US companies compete abroad, a key plank of Trump’s attempt to make trade ‘fairer’.
Wilson writes:Wilson writes:
A clear pattern is emerging – Donald Trump wants a weaker dollar. Prior to his inauguration he said the dollar was ‘too strong’. Then earlier this year Treasury secretary Mnuchin echoed those comments when he openly questioned the strong dollar policy.A clear pattern is emerging – Donald Trump wants a weaker dollar. Prior to his inauguration he said the dollar was ‘too strong’. Then earlier this year Treasury secretary Mnuchin echoed those comments when he openly questioned the strong dollar policy.
The Mnuchin effect lasted until the middle of April, but since then the dollar has been on the rise again, with the dollar index hitting 95, a level not seen since November last year.The Mnuchin effect lasted until the middle of April, but since then the dollar has been on the rise again, with the dollar index hitting 95, a level not seen since November last year.
When you look at the trade policies he’s pursuing, a weaker dollar makes sense. The only problem is that an all-out trade war, by making dollars scarcer, will force up the greenback against its peers.When you look at the trade policies he’s pursuing, a weaker dollar makes sense. The only problem is that an all-out trade war, by making dollars scarcer, will force up the greenback against its peers.
Trump’s intervention raises the dangers of a full-blown currency war, says Jasper Lawler of London Capital Group.Trump’s intervention raises the dangers of a full-blown currency war, says Jasper Lawler of London Capital Group.
He says China’s response - letting the yuan weaken sharply - is significant.He says China’s response - letting the yuan weaken sharply - is significant.
As Trump moaned about the strength of the dollar, the PBOC devalued the yuan by the most since 2016, sending a chill through the markets.As Trump moaned about the strength of the dollar, the PBOC devalued the yuan by the most since 2016, sending a chill through the markets.
Interpreted as China’s response to the US trade war – the starting of a currency war- risk off is prevailing with traders selling out of equities sending Asian markets and European futures sharply lower. It was only a month ago when China denied that they would start a currency war following Trump’s action. A lot can change in a month under Trump.Interpreted as China’s response to the US trade war – the starting of a currency war- risk off is prevailing with traders selling out of equities sending Asian markets and European futures sharply lower. It was only a month ago when China denied that they would start a currency war following Trump’s action. A lot can change in a month under Trump.
Donald Trump’s criticism of the Fed came after the US dollar hit a one-year high against a basket of other major currencies.Donald Trump’s criticism of the Fed came after the US dollar hit a one-year high against a basket of other major currencies.
The dollar has strengthened thanks to several US interest rate rises, and the prospect of more to come.The dollar has strengthened thanks to several US interest rate rises, and the prospect of more to come.
US interest rates are now 2% - up from just 0.25% after the financial crisis - with the Fed likely to push through two more quarter-point increases this year.US interest rates are now 2% - up from just 0.25% after the financial crisis - with the Fed likely to push through two more quarter-point increases this year.
In contrast, eurozone interest rates are zero, while the UK Bank Rate is just 0.5%.In contrast, eurozone interest rates are zero, while the UK Bank Rate is just 0.5%.
Trump singled out China for particular criticism last night, saying it was letting the yuan drop “like a rock”.Trump singled out China for particular criticism last night, saying it was letting the yuan drop “like a rock”.
So he won’t be pleased by Beijing’s response – the People’s Bank of China let the yuan hit a new one-year low today, fixing the currency at 6.7671 per dollar.So he won’t be pleased by Beijing’s response – the People’s Bank of China let the yuan hit a new one-year low today, fixing the currency at 6.7671 per dollar.
That’s nearly 1% weaker than Thursday’s fix.That’s nearly 1% weaker than Thursday’s fix.
The yuan then tumbled lower in nervous trading, hitting 6.812 to the dollar. That prompted a reaction; Chinese banks began buying the yuan and selling dollars, apparently in an attempt to prop the currency up.The yuan then tumbled lower in nervous trading, hitting 6.812 to the dollar. That prompted a reaction; Chinese banks began buying the yuan and selling dollars, apparently in an attempt to prop the currency up.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
With trade war fears mounting and Brexit looming, investors already have plenty to worry about. But Donald Trump has added a new anxiety -- currency wars.With trade war fears mounting and Brexit looming, investors already have plenty to worry about. But Donald Trump has added a new anxiety -- currency wars.
Overnight, the US president launched a rare attack on America’s central bankers, revealing that he wasn’t happy with their plans to raise US interest rates.Overnight, the US president launched a rare attack on America’s central bankers, revealing that he wasn’t happy with their plans to raise US interest rates.
Trump claimed that the Federal Reserve risked undermining all his good work strengthening the economy. He told CNBC that higher borrowing costs would drive up the dollar, especially as other central banks are keeping policy loose.Trump claimed that the Federal Reserve risked undermining all his good work strengthening the economy. He told CNBC that higher borrowing costs would drive up the dollar, especially as other central banks are keeping policy loose.
“I don’t really — I am not happy about it.”“I don’t really — I am not happy about it.”
“I don’t like all of this work that we’re putting into the economy and then I see rates going up.”“I don’t like all of this work that we’re putting into the economy and then I see rates going up.”
You could almost hear Fed chair Jerome Powell’s eyebrows rising sharply as Trump’s comments hit the wires. Central bank independence is a serious issue - policymakers are meant to navigate the economic squalls and storms free from political interference.You could almost hear Fed chair Jerome Powell’s eyebrows rising sharply as Trump’s comments hit the wires. Central bank independence is a serious issue - policymakers are meant to navigate the economic squalls and storms free from political interference.
But Trump clearly doesn’t play by the rules, so traders now have to calculate whether White House pressure is going to influence the path of interest rates. And if so, is that going to set off a currency war?But Trump clearly doesn’t play by the rules, so traders now have to calculate whether White House pressure is going to influence the path of interest rates. And if so, is that going to set off a currency war?
Powell may feel Trump’s criticism is particularly misplaced, as the president’s tax-cutting agenda is putting pressure on the Fed to act, to prevent a dangerous inflationary bubble.Powell may feel Trump’s criticism is particularly misplaced, as the president’s tax-cutting agenda is putting pressure on the Fed to act, to prevent a dangerous inflationary bubble.
Trump insisted that Powell was a “very good man”, but even so the president “wasn’t thrilled” about the prospect of further interest rate hikes.Trump insisted that Powell was a “very good man”, but even so the president “wasn’t thrilled” about the prospect of further interest rate hikes.
The White House tried to row back on Trump’s comments, insisting that he respected the independence of the Fed. But still, his intervention hit the markets, as CNBC explains:The White House tried to row back on Trump’s comments, insisting that he respected the independence of the Fed. But still, his intervention hit the markets, as CNBC explains:
Financial markets across the globe whipsawed on Trump’s comments.Financial markets across the globe whipsawed on Trump’s comments.
The dollar index, which tracks the dollar’s performance against a basket of six other currencies, fell from a one-year high and traded just below breakeven. U.S. equities edged off their session lows, but remained lower on the day.The dollar index, which tracks the dollar’s performance against a basket of six other currencies, fell from a one-year high and traded just below breakeven. U.S. equities edged off their session lows, but remained lower on the day.
Also coming up todayAlso coming up today
June’s UK public finances are released this morning. The City predicts that Britain borrowed around £5bn to balance the books last month, much the same as in May.June’s UK public finances are released this morning. The City predicts that Britain borrowed around £5bn to balance the books last month, much the same as in May.
9.30am BST: UK public finances for June9.30am BST: UK public finances for June
1.30pm BST: Canadian inflation figures1.30pm BST: Canadian inflation figures