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UK Business Secretary: We will not rethink our fiscal rules because of US tariffs.German Finance Minister: Despite the US announcement of tariffs, negotiations are still ongoing and no one has closed the door to trade negotiations with the US.Switzerlands March CPI monthly rate will be released in ten minutes.Comprehensive tariffs and reciprocal tariffs 1. Mark Zandi, chief economist at Moodys: On a static basis, new tariff revenues account for nearly 2% of GDP (not considering the impact of tariffs on the economy and taxes), which makes this round of tax increases the largest since the tax increases used to finance the war during World War II. 2. JPMorgan Chase report: If these tariffs are fully implemented, the actual tariff rate in the United States may rise to 25%. This will affect about $3.3 trillion worth of imported goods. This years cumulative tariff increase should be regarded as a tax increase of about $660 billion, accounting for 2.2% of GDP, making it one of the largest tax increases in modern history. 3. Capital Economics: Trumps tariffs could generate up to $700 billion (or 2.3% of GDP) in revenue each year, the average import-weighted tariff rate will jump to 19.1%, and the effective tariff rate will rise from 2.3% to around 26%, reaching the highest level in 131 years. 4. CICC: If these tariffs are fully implemented, the effective tariff rate of the United States may rise sharply by 22.7 percentage points from 2.4% in 2024 to 25.1%, which will exceed the tariff level after the implementation of the Smoot-Hawley Tariff Act in 1930. Tariffs may push up US PCE inflation by 1.9 percentage points and reduce real GDP growth by 1.3 percentage points, although it may also bring in more than $700 billion in fiscal revenue. 5. White House assistant Peter Navarro: Trumps tariffs may increase fiscal revenue by three times the scale of the World War II tax increase in 1942, which may become the largest tax increase in US history. 6. Trump himself said that some of the tariffs imposed this week could help the government raise more than $1 trillion in funds over the next year or so, help reduce the national debt, and may even offset some income taxes. Auto tariffs 1. White House Secretary Will Schaaf estimated that Trumps 25% tariff on cars and auto parts imported into the United States could increase "about $100 billion in new revenue." 2. Trump himself said that in a relatively short period of time, that is, one year from now, between $600 billion and $1 trillion would be raised. 3. The Yale Budget Lab, a think tank, estimates that auto tariffs could raise revenues of about $600 billion to $650 billion over 10 years, rather than in one year as Trump said, averaging $60 billion to $65 billion on an annual basis.UK Business Secretary: We have safeguards in place to ensure we are not overwhelmed by unwanted goods.

Even before lectures by the ECB's Draghi and the Fed's Powell, the euro has dropped below the dollar

Daniel Rogers

Sep 08, 2022 15:42

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After recovering from a 19-year low the day before, the euro has fallen against the dollar to 0.9990 as investors become more cautious in the lead-up to the key events. The bloc's economic troubles and the European Central Bank's (ECB) reluctance to increase rates significantly may also weigh on the major currency pair.

 

The Euro to Dollar exchange rate may have been weighed down by Ursula von der Leyen's gloomy forecasts as well as the recent retreat return in rates and hawkish Fed predictions.

 

Following a sharp reversal from their mid-June highs, 10-year US Treasury rates have recovered about 3.27 percentage points. Rate hike expectations in September have increased from the previous day's 73% to today's 77%, according to the CME's FedWatch Tool.

 

But EU President von Der Leyen is pessimistic, as she reported the previous day that half of the EU's aluminum and zinc capacity had been shut down due to the power outage.

 

On Wednesday, the pair saw its highest one-day increase in 2.5 months, thanks to encouraging news out of the Eurozone and the Federal Reserve's Beige Book. The inconsistent statements made by Fed officials also helped the buyers.

 

Despite this, Q2 2022 (the three months before June 2022) GDP growth in the Eurozone was 0.8% QoQ, exceeding the initial projection of 0.6% growth. Annual growth was 4.1% in Q2 compared to the 3.9% projected in the first estimations. However, contrary to expectations, the United States' goods and services trade surplus narrowed to $-70.7 billion in July from $-80.9 billion in June. Good trade balance decreased to $91.1B from $-89.1B in July. Pair buyers were also bolstered by the fact that the Fed's Beige Book showed signs of a supply chain recovery and a slowing in price inflation.

 

On Wednesday, Reuters reported that Fed Vice Chair Lael Brainard said the Fed's policy rate has to raise further and that the Fed will need to maintain a tight monetary policy for some time. Alternatively, Federal Reserve Bank of Cleveland President Loretta Mester said, "I will determine my preferred rate hike amount at the September meeting itself."

 

As of this writing, S&P 500 Futures are indicating modest losses despite the fact that Wall Street gained at the close of trading and rates fell.

 

Given the hawkish views of the ECB, Fed Chair Powell will have to justify rapid rate hikes in today's address. Thus, the effectiveness with which Powell can convince investors of future rate hikes will determine the extent to which the EUR/USD pair continues to fall. Prior to that, it will be extremely important to keep an eye on the ECB's ability to calm policy hawks amid ongoing uncertainty over whether or not to make a move of 50 basis points or 75 basis points.