China Risks Growth Setback As Mexico Joins US In Trade Crackdown

Samantha Luan

Forex

Political

Economic

China–U.S. Trade War

Summary:

Mexico’s planned tariffs on Chinese goods add pressure as Beijing battles U.S. trade levies, testing China’s export resilience and 5% GDP growth goal.

Key Points:

● Mexico plans tariffs on Chinese goods, raising concerns for Beijing’s 5% GDP target and trade resilience.

● Mainland stocks dipped after hitting highs, but policy support continues to fuel optimism in equities.

● Upcoming PMIs will show if tariffs weigh on China’s manufacturing, influencing expectations for new stimulus.

Mexico Targets Chinese Goods With Tariffs, Raising Trade War Stakes

China’s economy faces a pivotal test this quarter as tariff developments challenge the growth outlook. Recent economic indicators have raised concerns about Beijing achieving its 5% GDP growth target for 2025.The US and China extended the trade war truce in August, leaving Chinese goods exposed to US tariffs averaging 55%. In contrast, Beijing maintained the 10% levy on US shipments bound for China.

Avoiding a sweeping 145% US tariff on shipments to the US was critical. However, the US administration’s proxy trade war via third-country tariffs continues to gain momentum. Reports of Mexico’s plans to raise tariffs on Chinese goods signal another roadblock, challenging efforts to bypass US tariffs.Mexico has become a crucial hub for Chinese automakers targeting the US. BYD, Chery, and MG Motors have reportedly invested over $700 million in local plants. New tariffs on shipments to Mexico, coupled with existing US tariffs on Mexican exports, could dent demand for Chinese autos and parts.

For context, Mexico accounted for the largest share of US auto imports, underscoring Mexico’s importance for auto manufacturers.

Bloomberg – US Auto Imports By Country

Did the US Government Push Mexico to Target Chinese Shipments?

In July, the US administration targeted another of China’s key trade routes, Southeast Asia. A 40% US levy on transshipments from Vietnam and a 19% tariff on Indonesian goods could affect Chinese exports. Chinese exports surged 7.2% year-on-year in July, up from 5.8% in June, with Southeast Asia driving growth. But August data will show whether fresh tariffs start to bite.

CN Wire commented on July’s trade data, stating:

“This export resilience persists despite high U.S. tariffs, indicating strong global demand continues to support China’s economy. […]. However, whether this momentum will last remains uncertain, as front-loading effects may fade.”Mexico’s tariff news follows reports of the US administration planning to impose rules of origin for indirect shipments.Natixis Asia Pacific Chief Economist Alicia Garcia Herrero commented on China’s outlook for terms of trade, stating:

“Rerouting will be much harder in the second half. So that’s going to hit Chinese exports indirectly. So, that’s why the second half is tougher and the government has been preparing.”The latest trade developments came as the US and China prepare for the next round of trade talks. China’s chief trade negotiator Li Chenggang plans to return to Washington to discuss trade terms. The outcome of trade talks could be crucial given China’s reliance on ‘third countries’ and tariffs targeting Chinese shipments.

Mainland Stock Markets Resume Move Toward Record Highs

On Wednesday, August 27, Mainland China’s CSI 300 and the Shanghai Composite Index pulled back 1.49% and 1.76%, respectively, after briefly reaching new year-to-date highs.Despite the retreat, optimism over Beijing’s 5% GDP growth target, supported by policy measures, continues to bolster demand for Mainland-listed stocks. The CSI 300 and the Shanghai Composite were up 1.19% and 0.58%, respectively, during the August 28 morning session.

Both indexes continue to outperform the Nasdaq Composite Index but trail the Hang Seng Index year-to-date. CSI 300 gained 9.4% in August and 12.7% YTD. Shanghai Composite rose 8.5% in August and 14.1% YTD. The Hang Seng leads, up 24.8% YTD, well ahead of the Nasdaq’s 11.8%Trade developments and Beijing’s next stimulus measures remain crucial to market momentum. An escalation in US-China trade tensions and delays in fresh stimulus could unravel the bullish sentiment.

CSI 300 – Nasdaq Composite Index – Daily Chart – 280825

The Road Ahead: Trade Talks and Stimulus

The next moves in US-China trade talks and Beijing’s stimulus drive will set the tone for markets in the coming weeks.However, crucial economic indicators will also affect market trends. August’s NBS private sector PMIs on Sunday, August 31 and September 1 will draw interest. The PMIs will reveal whether tariffs added more pressure on China’s manufacturing sector midway through Q3. Weak numbers could raise expectations of fresh stimulus from Beijing.

Source: FX Empire

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Glendon

Economic

Forex

Fewer Americans sought unemployment benefits last week as employers appear to be holding onto their workers even as the economy has slowed.

Applications for unemployment benefits for the week ending Aug. 23 dropped 5,000 to 229,000, the Labor Department reported Thursday.

Measures of the job market are being closely watched on Wall Street and by the Federal Reserve as the most recent government data suggests hiring has slowed sharply since this spring. Job gains have averaged just 35,000 a month in the three months ending in July, barely one-quarter what they were a year ago.

Weekly applications for jobless benefits are seen as a proxy for layoffs and have mostly settled in a historically healthy range between 200,000 and 250,000 since the U.S. began to emerge from the COVID-19 pandemic more than three years ago.

While layoffs are low, hiring has also weakened as part of what many economists describe as a “no hire, no fire” economy.

Growth has weakened so far this year as many companies have pulled back on expansion projects amid the uncertainty surrounding the impacts of President Donald Trump’s tariff policies. Growth slowed to a 1.3% annual rate in the first half of the year, down from 2.5% in 2024.

The weakness in the job market is a key reason that Federal Reserve Chair Jerome Powell signaled last week that the central bank may cut its key interest rate at its next meeting Sept. 16-17. A cut could reduce other borrowing costs in the economy, including mortgages, auto loans, and business loans.

Source: Yahoo Finance

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Warren Takunda

Stocks

London stocks had fallen into the red by midday on Thursday, with US chip maker Nvidia in focus after its second-quarter earnings failed to impress, with ex-dividends taking some of the shine off markets.

The FTSE 100 was down 0.4% at 9,216.76.

Neil Wilson, UK investor strategist at Saxo Markets, said the Nvidia results were "great but not great enough to satisfy some whisper numbers that were higher than consensus forecasts".

He continued: "Shares sold off a touch over 3% in the after-hours market chiefly because data centre revenues - the key AI bit of the business - were a tad lighter than expected. And despite the upbeat guidance for the current quarter that was a little ahead of expectations, the outlook on China remains a bit murky.

"Data centre revenue rose 56% year-on-year to $41.1bn, short of an estimated $41.34bn. The company said that $33.8 billion of Nvidia’s data centre sales were for Nvidia’s GPU chips, down 1% from the first quarter because of $4bn fewer H20 sale because it sold none of these chips to China in the quarter. Relaxation of export controls could see Nvidia sell between $2bn and $5bn in H20 chips this quarter - sales not included in the revenue guidance.

"Don’t forget gaming - hardly the powertrain of this stock’s massive rerating but still important and impressive, with revenues up 49% to $4.3bn, a fresh record for a quarter and well ahead of expectations. Notable also to look at Nvidia’s other income, which at $2.2bn was driven by its stake in CoreWeave, an AI company offering access to Nvidia GPUs that rose 1755 over the last quarter."

In equity markets, Aviva, Croda, LondonMetric, Auto Trader and Games Workshop lost ground as they traded without entitlement to the dividend.

Drax tumbled after saying it’s being investigated by the Financial Conduct Authority over statements regarding biomass sourcing.

In a brief statement, the company said the regulator has begun an investigation covering the period from January 2022 to March 2024.

It relates to certain historical statements about Drax's biomass sourcing "and the compliance of Drax's 2021, 2022 and 2023 annual reports with the Listing Rules and Disclosure Guidance and Transparency Rules".

Russ Mould, investment director at AJ Bell, said: "Having previously drawn fire from the media for the sourcing of wood for its biomass pellets, Drax now faces the potentially more serious situation of being under the harsh glare of the Financial Conduct Authority over the same issue.

"Notably the investigation covers several years’ worth of accounts and follows accusations from one of its former top lobbyists earlier this year at an employment tribunal that it had misled regulators, the government and the public.

"Drax was already fined a meaningful sum by Ofgem almost exactly a year ago for inaccurate data on sourcing for its pellets.

"There will be concern about any sanction levied by the FCA but also what it might mean for the subsidies the company continues to receive from government.

"The share price reaction shows the market is concerned about the impact this could have on the business and, while the company is important to the UK’s energy security, that doesn’t mean it can escape scrutiny on its sustainability credentials."

Precision engineering group Hunting fell as it held full-year guidance but cautioned that market uncertainty could impact results.

On the upside, IT infrastructure firm Softcat rallied after saying it expects to deliver high-teens growth in full-year gross profits and mid-teens growth in FY operating profits as it continued to trade well during the fourth quarter, supported by further conversion of larger solutions projects.

Source: Sharecast

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Michelle

Economic

Forex

The US economy expanded in the second quarter at a slightly faster pace than initially estimated on a pickup in business investment and an outsize boost from trade.

Inflation-adjusted gross domestic product, which measures the value of goods and services produced in the US, increased at a 3.3% annualized pace, the second estimate from the Bureau of Economic Analysis showed Thursday. That compared with an initially reported 3% increase.

Net exports added nearly 5 percentage points to GDP, the most on record after weighing on GDP in the first three months of the year. Goods and services that aren’t produced in the US are deducted from the GDP calculation but counted when consumed.

Source: Bloomberg Europe

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Warren Takunda

Economic

The Euro is under pressure as markets anticipate another French political crisis that will likely see Prime Minister Francois Bayrou fall on September 08, when the National Assembly will deliver a confidence vote on his government.

With the main opposition parties indicating they will vote against the government, efforts to lower France's national debt will be put on ice again while President Emmanuel Macron scrambles to cobble together another government, raising concerns amongst investors about the wisdom of lending money to the French government.

"Sterling for the time being manages to capitalise on the poor euro momentum," says Mathias Van der Jeugt at KBC Bank.

The Pound to Euro exchange rate (GBP/EUR) is back to 1.16 amidst the uncertainty and is looking to next test an important technical resistance area at 1.1613, ahead of a potential move to 1.1650.

Francesco Pesole, FX Strategist at ING Bank, says a test of 1.1630 remains possible, "even though our longer-term view is less optimistic on GBP given the possibility of a dovish rethink of BoE cuts later in the autumn."

Analysts say France won't trigger a full-blown crisis for the Euro similar to that seen during the 2010s, but it's creating enough uncertainty to allow euro buyers to book transfers at better rates.

For now, investor concerns are more apparent in French stock markets which have come under pressure this week, and in bond markets, where yields on French debt are rising faster than they are elsewhere.

Pound-to-Euro Rises to 1.16 as France Opens a Window for Gains_1

Above: GBP/EUR at daily intervals shows gains are relatively contained.

In fact, the interest rate paid by French bonds to investors is about to surpass that of Italy.

"I bet that within a fortnight, our debt will be costing more than Italy's," said France's finance minister, Éric Lombard on Tuesday.

Some French bond varieties, including the 5-year, already trade higher than their Italian counterparts. The gap between the important 10-year tenors of Italy and France is now down to just 5.5 basis points.

Pound-to-Euro Rises to 1.16 as France Opens a Window for Gains_2

Above: French 5-year bond yields have already caught and surpassed its Italian equivalent.

Although losses in the Euro are still contained for now, analysts agree, should the cost of French debt rise beyond a certain threshold, Euro losses could accelerate.

"Wider European sovereign spreads still correlate with a weaker euro, even if the relationship is less significant than it was before Mario Draghi’s 'whatever it takes' intervention," says Kit Juckes, Head of FX Research at Société Générale.

The difference between French and German debt yields is the more important benchmark to watch from a currency perspective, as it gives an indication that the premium on French debt is increasing relative to the safe-haven German bond:

Pound-to-Euro Rises to 1.16 as France Opens a Window for Gains_3

Image courtesy of Wells Fargo.

Foreign exchange analysts say that when the spread between German and French bond yields rises to 90 and above, the Euro could react more forcefully and declines become more acute.

However, the crisis should be shorter-lived and the financial market more contained than it was in December 2024, when the previous government of Michel Barnier was ejected over similar circumstances.

The Barnier episode provided markets with a template to work from, meaning current uncertainty is less severe. Less uncertainty = less pressure on the Euro.

"Given the absence of generalised fiscal uncertainty across the Eurozone region, we also do not expect the latest French developments to have a long-lasting impact on the euro over the medium-term," says Nick Bennenbroek, an economist at Wells Fargo.

This should mean the Pound's window to advance against the Euro should be short-lived.

Analysts also point out that markets are already prepared for a worst-case scenario of the government failing, meaning the crisis could already be in the price of the Euro.

"We also note the 'bad outcome' is already a base case, which means the market impact is more likely to happen now - if at all - rather than on September 8," says Daniel Tobon, an analyst at Citi.

Pound-to-Euro Rises to 1.16 as France Opens a Window for Gains_4

Above: France simply hasn't made the progress on reducing debt that other European countries have made. Image courtesy of Wells Fargo.

France's national debt reached a record €3,346 billion at the start of 2025, placing it as the third highest in the Eurozone, behind Italy and Greece.

Recent developments, including budget overshoots and political challenges, have exacerbated the situation, leading to a projected increase in the total French debt level to around 126% of GDP by 2030 from 113% at present.

In 2024, France's annual budget deficit was 5.8% of GDP, according to Eurostat data. This figure is significantly higher than the European Union's mandated limit of 3% of GDP for member states' budget deficits

Prime Minister Bayrou want to rein in debt by raising taxes and cutting spending in the 2026 budget. This plan aims to achieve €43.8BN in savings, but this is too much for opposition parties to stomach, and is why the budget is stuck in the National Assembly.

By calling a confidence vote, Bayrou seeks to pressure the opposition by conveying to French voters how unserious they are about grappling with the country's problems.

With Bayrou likely to depart, Macron will have to appoint a new Prime Minister, reappoint Bayrou, or call a new election.

"Expectations appear to be leaning towards the appointment of a new Prime Minister, perhaps by offering some budget concessions to opposition parties in exchange for their support," says Bennenbroek at Wells Fargo.

"A new round of elections would of course provide a more extended period of volatility," he adds.

Source: Poundsterlinglive

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Golden Gleam

Commodity

Technical Analysis

Gold keeps firm tone and cracks very significant $3400 resistance zone (psychological / Aug 8 peak), trading at the highest in nearly three weeks on Thursday.

Bulls are driven by uncertainty after President Trump’s attempts to fire Fed Governor and persisting tensions over potential replacement of Chair Powell, as well as expectations for Fed rate cut in September.

Although Chair Powel showed a dovish shift in his latest speech, he did not commit to any action in the near future, implying that coming economic data (US PCE index, due on Friday and August Labor report, due next week) will provide more details about inflation and condition in the labor sector and contribute to the central bank’s decision in September’s policy meeting.

While the fundamentals move into desired direction (PCE index is expected to keep steady rise by 2.6% in July, while recent strong drop in US employment and rise of unemployment) and contribute to rising bets for rate cut.

Technical picture remains predominantly bullish on daily chart (MA’s in full bullish configuration/break above triangle upper boundary / long tail of Wednesday’s daily candle) but positive signals are partially offset by strongly overbought Stochastic and flat 14-d momentum.

This implies that bulls will face difficulties to break critical $3400 zone, with consolidation likely to precede fresh push higher.

Broken Fibo 76.4% barrier ($3385) should ideally contain, with extended dips expected to find solid ground above broken triangle’s upper boundary ($3373) to keep bulls in play.

Firm break of key obstacles at $3400/08 to signal bullish continuation and expose targets at $3438/52 (tops of July 23 / June 16 respectively).

Res: 3400; 3408; 3438; 3452.Sup: 3385; 3373; 3367; 3356.

Source: ACTIONFOREX

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Winkelmann

Economic

Political

Russian President Vladimir Putin and North Korea's Kim Jong Un will attend a military parade in Beijing, marking the first public appearance of the two leaders alongside President Xi Jinping in a show of collective defiance amid Western pressure.No Western leaders will be among the 26 foreign heads of state and government attending the parade next week with the exception of Robert Fico, prime minister of Slovakia, a European Union member state, according to the Chinese foreign ministry on Thursday.

Against the backdrop of China's growing military might during the "Victory Day" parade on September 3, the three leaders will project a major show of solidarity not just between China and the Global South, but also with sanctions-hit Russia and North Korea.Russia, which Beijing counts as a strategic partner, has been battered by multiple rounds of Western sanctions imposed after its invasion of Ukraine in 2022, with its economy on the brink of slipping into recession. Putin, wanted by the International Criminal Court, last travelled in China in 2024.

North Korea, a formal treaty ally of China's, has been under United Nations Security Council sanctions since 2006 over its development of nuclear weapons and ballistic missiles. Kim last visited China in January 2019.Those attending the parade marking the formal surrender of Japan during World War II will include Belarus President Aleksandr Lukashenko, Iran's President Masoud Pezashkian, Indonesian President Prabowo Subianto and South Korea's National Assembly Speaker Woo Won-shik, said Chinese Assistant Foreign Minister Hong Lei at a news conference.

Serbia's President Aleksandar Vucic will also attend the parade.

The United Nations will be represented by Under-Secretary-General Li Junhua, who previously served in various capacities at the Chinese foreign ministry, including time as the Chinese ambassador to Italy, San Marino and Myanmar.On the day, President Xi Jinping will survey tens of thousands of troops at Tiananmen Square alongside the foreign dignitaries and senior Chinese leaders.The highly choreographed parade, to be one of China's largest in years, will showcase cutting-edge equipment like fighter jets, missile defence systems and hypersonic weapons.