Malaysian Pharmaceuticals, Semiconductors Exempt From US Tariffs

Economic

Summary:

Malaysian pharmaceutical products and semiconductors will be exempt from US tariffs.

Malaysian pharmaceutical products and semiconductors will be exempt from US tariffs, the country's trade minister Tengku Datuk Seri Zafrul Abdul Aziz said on Friday.

"At this time, exports of semiconductor and pharmaceutical (products) remain at 0% (tariff rate)," he said at a press briefing after the United States imposed a tariff of 19% on Malaysia's exports.

He said the levy on Malaysian goods would be effective from August 8.

Zafrul also said that there had been no agreement with the United States or other countries on the exclusive supply of rare earths.

"In fact, no such request has been made by the US," he said.

Gaining access to rare earth metals has been a crucial part of US trade negotiations, with rival China currently in control of 90% of global processing capacity. Critical minerals were also under discussion during US negotiations with Indonesia.

Zafrul said Malaysia and the United States would release a joint statement on tariffs at the weekend.

The trade ministry said in a statement earlier on Friday that the tariff outcome came after sustained engagement by both countries and did not cross any of Malaysia's "red lines" or compromise its sovereign rights.

Source: Theedgemarkets

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Michelle

Economic

Forex

Euro zone inflation was unchanged at a higher-than-expected 2% in July, flash data from statistics agency Eurostat showed Friday.

Economists polled by Reuters had expected the figure to hit 1.9%, after a 2% reading in June.

The inflation figures follow on the footsteps of indications earlier this week that showed the euro zone economy expanded by a better-than-expected 0.1% in the second quarter, which was nevertheless sharply down on the 0.6% growth of the three months to the end of March.

Analysts interpreted the data as Europe's economy so far showing resilience in the face of U.S. President Donald Trump's tariff policies. The European Union and Washington recently inked a trade agreement which includes a 15% baseline levy for EU goods bound for the U.S. Sectoral tariffs and temporarily reduced so-called reciprocal duties have already been in play.

Duties are widely expected to weigh on economic growth, including in the euro zone, and affect prices of goods for U.S. consumers. Their impact on inflation in Europe remains uncertain.

Source: CNBC

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Gerik

Economic

Tariff Shock Bites into Exporters’ Margins

In its full quarterly outlook, the Bank of Japan highlighted a critical concern: Japanese exporters, especially automakers, are absorbing U.S. tariffs rather than passing them onto American consumers. This price cushioning strategy, meant to maintain sales volumes, has already driven export prices down by around 20% since April, eroding profitability. The BOJ notes that this pressure may deepen as trade volumes normalize, exposing the true extent of the damage.

While the U.S.-Japan trade deal inked last month reduced auto tariffs from 25% to 15% and spared other goods from new levies, the relief is delayed and partial. Automakers still face the challenge of protecting market share in the U.S. without compromising margins. With Japan’s auto sector representing over a quarter of its U.S. exports, the stakes are high.

Capex Caution Emerges Despite Initial Stability

Although corporate capital expenditure plans remain largely intact for now having been set at the start of the fiscal year in April the BOJ warns that history shows such shocks often trigger capex downgrades later in the year. The central bank flagged that uncertainty surrounding global trade policy, particularly the volatile trajectory of U.S. tariffs, could discourage long-term investment decisions as 2025 progresses.

Importantly, the BOJ cautions that falling profits could also temper corporate appetite for wage hikes, which are crucial for achieving sustained domestic inflation and supporting household demand two core pillars of Japan’s economic recovery plan.

Growth Forecasts and Lagging Confidence

In its macroeconomic projections, the BOJ still expects GDP growth of 0.6% in 2025, with slight acceleration to 0.7% in 2026 and 1.0% in 2027. However, these forecasts hinge on the assumption that companies will not drastically scale back investment or payroll commitments. With the specter of tariffs looming large, this assumption may prove optimistic.

The BOJ also underscored that the trade front-loading where firms expedite exports to beat tariff deadlines has temporarily inflated trade volumes. Once this effect fades, a clearer picture of actual demand and export conditions will emerge, potentially revealing deeper vulnerabilities.

While the BOJ acknowledges the recent U.S.-Japan trade deal as a mitigating factor, its report signals deepening concerns over the medium-term outlook. With profitability under pressure and capital investment at risk, Japan's export-led recovery could lose momentum if tariff uncertainties are not resolved. The central bank’s cautious tone suggests that while rate hikes remain on the table, any aggressive tightening would be weighed carefully against trade-related headwinds and weakening corporate confidence.

Source: Reuters

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Gerik

Economic

European Airline Stocks Climb Despite Regulatory Headwinds

Over the past six months, European airline stocks have defied geopolitical and macroeconomic uncertainty, with carriers like Air France-KLM, Lufthansa, and IAG reporting strong second-quarter results. Air France-KLM leads the gains, benefiting from its elevated luxury image and successful premium seat sales, particularly on transatlantic routes.

These performances contrast with persistent complaints from European airline CEOs regarding environmental levies and airport taxes. Nonetheless, the discipline in cost control and strategic positioning have yielded positive investor sentiment, helping European carriers outperform in the equity markets.

U.S. Airlines Weighed Down by Weak Consumer Confidence

By contrast, U.S. airlines such as Delta, United, and American have seen share prices decline through much of 2025, reflecting a slowdown in discretionary travel spending. The uncertainty created by President Trump’s aggressive tariff policies, including sweeping new levies on 68 countries and the EU, has dented both consumer and corporate confidence.

While the recent tax-and-spending bill provided some clarity and sparked a short-term rebound in airline stocks, the overall sentiment remains fragile. Earnings forecasts for 2025 have been revised down, and analysts remain cautious about the near-term outlook.

Transatlantic Demand Softens but Doesn’t Collapse

Analysts note that fears of a collapse in transatlantic demand have not materialized. While demand has softened, especially on North Atlantic routes, it remains relatively stable, with Americans continuing to book travel to Europe, often opting for European carriers. This divergence has given European airlines a relative edge in the global aviation market.

Goodbody analyst Dudley Shanley noted that demand "was a little weaker but it has not collapsed as had been feared by investors," suggesting that pessimism may have been overdone. This sentiment has helped stabilize share prices in both regions, though the gap remains wide.

Tariff Fallout May Be Temporary but Risks Persist

Booking Holdings’ CFO confirmed that U.S. travel demand still lags behind Europe and Asia. This reflects not only economic conditions but also differences in regulatory and consumer behavior across regions. Analysts like Conor Cunningham of Melius Research remain cautiously optimistic, indicating that if corporate travel and consumer confidence improve, the current dip could be seen as a temporary tariff-induced pause.

Yet the prospect of more trade frictions remains a looming risk. The uncertainty tied to retaliatory measures and geopolitical volatility continues to cast a shadow over U.S. carriers, making sustained recovery more difficult.

In 2025, European airlines have navigated macroeconomic headwinds more effectively than their U.S. peers, leveraging strong transatlantic demand and tighter cost structures. Meanwhile, U.S. airlines are caught between inflation, regulatory ambiguity, and trade war fallout. Whether the current performance gap narrows depends largely on how quickly U.S. travel demand rebounds and how global trade tensions evolve.

Source: Reuters

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Gerik

Economic

Inflation Concerns Shift BOJ Stance Toward Hawkish Tilt

The Bank of Japan (BOJ) took a subtle but significant step toward resuming monetary tightening by explicitly warning that persistent increases in food prices may trigger broader inflationary pressures. For the first time, the BOJ’s quarterly report included detailed concerns about second-round effects where higher costs in essentials like food spill over into wage demands and broader pricing behavior.

The revised report eliminated previously cautious language, such as the term "extremely" when referring to U.S. trade policy uncertainty. It also upgraded the inflation forecast and signaled a more balanced view of risks, indicating a potential end to the BOJ's cautious pause that followed the initial shock of Trump's tariff announcement in April.

Dovish on Surface, But Signals Preparation

Although markets initially interpreted BOJ Governor Kazuo Ueda’s comments as dovish, analysts argue that the underlying message reveals a central bank quietly preparing for action. Ueda stated the BOJ would not necessarily wait for inflation to firmly hit the 2% target but would act if the likelihood of achieving it sustainably becomes convincing.

He emphasized that the current 0.5% rate remains accommodative and that each upcoming policy meeting from September to December will be “live,” suggesting a rate hike could occur at any time depending on economic signals.

Hike Odds Rise for October and December

Interest rate swaps now imply a 54% probability of a hike to 0.75% in October and a 71% chance by December. These expectations align with a Reuters poll showing that most economists anticipate a hike before year-end, especially as inflation expectations gain traction and corporate behavior adjusts.

Ueda’s remarks coincided with signs of stabilization in Japan’s trade exposure. The bilateral trade agreement with the U.S. in July has mitigated tariff-related risks, helping the BOJ regain confidence in its outlook despite ongoing global tensions.

Second-Round Effects: From Groceries to Wages

The BOJ highlighted that over 1,000 food items rose in price this August, and projections show over 3,000 more to increase in October. Companies are no longer absorbing raw material, labor, and logistics costs but are instead passing them to consumers. This change could pressure wage negotiations, feeding into a feedback loop that anchors inflation above 2%.

Such trends reinforce the BOJ’s view that underlying inflation once deemed fragile is becoming more embedded, especially if wage growth sustains. However, Ueda stopped short of confirming the central bank was behind the curve, instead maintaining that more data was needed to confirm the trajectory.

The BOJ is clearly signaling its readiness to hike interest rates again, driven by persistent inflation and changing corporate dynamics. However, by keeping the door open on timing, it maintains the flexibility to react to evolving domestic and global conditions. For investors, each upcoming meeting now carries weight, with Japan’s monetary policy entering a more active, responsive phase.

Source: Reuters

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S&P Global Inc.

Forex

Economic

Eurozone manufacturing output rises marginally again in July

Key findings:

● HCOB Eurozone Manufacturing PMI at 49.8 (Jun: 49.5). 36-month high.

● HCOB Eurozone Manufacturing PMI Output Index at 50.6 (Jun: 50.8). 4-month low.

● Production volumes tick up despite marginal decrease in new orders

Data were collected 10-24 July

The euro area manufacturing sector recorded a broad stabilisation of operating conditions at the start of the third quarter.Output growth was sustained, although the upturn was the softest since March, while new orders saw a fresh (albeit marginal)reduction amid a deterioration in export* demand. Positively, factory job shedding cooled to its least pronounced in almost twoyears.As for prices, input costs were unchanged and this was practically true for output charges too. There was a slight easing inyear-ahead growth expectations, although forecasts remained slightly above their long-term average.

The HCOB Eurozone Manufacturing PMI®, a measure of the overall health of eurozone factories compiled by S&P Global,edged up to a three-year high of 49.8 in July, from 49.5 in June. Posting only just below the 50.0 threshold, the latest figureindicated a near-stabilisation of operating conditions across the eurozone goods-producing sector.Of the euro area countries with Manufacturing PMI data available, Ireland had the strongest-performing factories in July, withgrowth slowing but remaining solid overall. Meanwhile, there were pick-ups in momentum across both the Netherlands andSpain, posting their fastest expansions in 14 and seven months, respectively. Greece continued its growth trend in July,extending the current sequence to two-and-a-half years. In the remaining countries, Manufacturing PMI prints rose butremained below the crucial 50.0 mark, signalling sustained but slower deteriorations on the month. Both Germany and Francesaw fractional increases in the headline PMI since June, with the former hitting its highest mark in close to three years. As forFrance, its manufacturing sector was tied with Austria as the worst-performing at the start of the third quarter.

The eurozone as a whole saw factory production levels rise in July, marking five successive monthly expansions. The increaseslowed slightly from June, however, and was the softest since March. Weighing on output was a fresh decline in new business.The deterioration in demand was small, but nevertheless the quickest in four months. Export sales were a drag on total ordervolumes, latest survey data revealed, with new work received from international clients falling after stabilising in the previousmonth.Meanwhile, eurozone manufacturers dampened their retrenchment efforts in the latest survey period. Both input purchasing andemployment moved closer to stabilisation during July, posting their slowest reductions in 37 and 23 months, respectively.July survey data pointed to a slight intensification of supply chain pressures as average input lead times lengthened for asecond month in a row and to the greatest extent since November 2022. At the same time, pre- and post-production stockscontinued to decrease, although rates of depletion softened.

The eurozone manufacturing sector registered stable prices during July. Input costs were unchanged, following three months ofdeclines, while prices charged saw virtually no movement.Looking ahead, eurozone goods producers remained optimistic of growth over the next 12 months. In fact, the overall level ofoptimism was just above its long-term average despite falling from June’s 40-month high.

Comment

Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:

“Manufacturing in the eurozone is cautiously regaining momentum. It is primarily the smaller economies that offer reasonsfor optimism. The PMIs from Spain and the Netherlands indicate accelerated economic growth, while Ireland and Greeceremain in expansion territory. In the three largest economies as well as Austria, the PMI signals that the industrial recessionhas significantly eased. This broadens the scope of the recovery. With the newly agreed trade framework between the EUand the U.S., uncertainty should decline, and the signs point to a continued upward trend in the coming months.

“France is currently the biggest drag on growth in the eurozone’s manufacturing sector. It is particularly discouraging thatproduction in France has declined over the past two months, while employment has slightly increased during the sameperiod. The problem lies in the resulting drop in productivity, which makes economic growth even harder to achieve. InGermany, the situation is reversed: production is growing while employment is being reduced. France is also burdened bythe prospect of an austerity budget and the associated risk of the current government stepping down. This contrasts withGermany, where much of the growth hopes rest on expansionary fiscal policy and the political situation is significantly morestable than in France. Less political and fiscal uncertainty in the eurozone’s second-largest economy would be important tohelp the eurozone manufacturing sector achieve sustainable growth overall.

“Supply chains remain relatively strained. Delivery times have lengthened. Given the fragility of the recovery, it is notdemand that is causing customers to wait longer for their goods. Volatile U.S. tariff policies and uncertainty stemming fromgeopolitical tensions may play a key role here. We expect that companies will continue to face sudden supply chaindisruptions for the foreseeable future.”

Source:S&P Global

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Glendon

Economic

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Euro zone manufacturing moved closer to stabilization in July as factory activity contracted at its slowest pace in three years, despite a dip in new orders and slower output growth, a survey showed.

The HCOB Eurozone Manufacturing Purchasing Managers' Index, compiled by S&P Global, edged up to 49.8 in July from 49.5 in June, reaching its highest level since July 2021.

That matched a preliminary estimate and was only a whisker away from the 50.0 mark separating growth from contraction.

Factory output grew for the fifth consecutive month but at a slower pace with the output index easing to 50.6 from 50.8, marking a four-month low.

"Manufacturing in the euro zone is cautiously regaining momentum. With the newly agreed trade framework between the EU and the U.S., uncertainty should decline, and the signs point to a continued upward trend in the coming months," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

The U.S. struck a framework trade agreement with the European Union on Sunday, imposing a 15% import tariff on most EU goods.

Germany, Europe's largest economy, saw its manufacturing PMI rise to a 35-month high of 49.1, though still indicating contraction. France and Austria tied as the worst performers with identical readings of 48.2.

Among euro zone countries, Ireland led manufacturing performance with a PMI of 53.2 although this represented a two-month low. The Netherlands and Spain both recorded 51.9, marking 14-month and seven-month highs respectively. Greece maintained its growth streak at 51.7.

New orders declined marginally as export sales proved a drag following their brief stabilisation in June.

Price pressures remained largely absent in July, with input costs unchanged following three months of declines, while output prices showed virtually no movement.

The European Central Bank left interest rates unchanged last week and offered a modestly upbeat assessment of the currency union's economy.

Business confidence regarding future output remained above the long-term average in July, though it retreated from June's 40-month high, suggesting manufacturers maintain a cautiously optimistic outlook for the year ahead.