Market Round-Up

Electric vehicles (EVs) manufactured in China and imported into Canada will be subject to a 100% tariff starting on 1^st October. The Canadian Government, led by Prime Minister Justin Trudeau, is imposing this tariff as part of its claim that China is not adhering to fair trade practices by heavily subsidising its EV sector, giving its manufacturers an unfair advantage. This decision will affect not only Chinese-based companies but also foreign manufacturers such as Tesla, which benefits significantly from its operations in Shanghai. China, one of Canada's largest trading partners, has expressed concerns over the recent changes, stating that these measures violate World Trade Organisation (WTO) rules.

Trudeau’s government is attempting to strengthen its position in the global EV industry by signing deals with global EV manufacturers, particularly those based in Europe. Unlike many other regions, Canadian roads have not yet seen a significant influx of Chinese-manufactured electric vehicles, despite efforts by companies like BYD to grow within the market. The imposition of a 100% tariff is likely to hinder the manufacturer’s ability to gain and maintain market share in Canada. Furthermore, Canada’s recent policy shifts toward China extend beyond the EV sector, as Chinese steel and aluminium imports will also face a 25% tariff starting 15^th October.

Following a prolonged period of high inflation and a cost-of-living crisis in both the UK and the US, inflation is moving closer to both countries’ targets of 2%, set by the Bank of England and the US Federal Reserve respectively. To combat these issues, both governments raised interest rates to levels not seen in recent years, reaching 5.25-5.5%. With inflation now under control, there is less justification for maintaining such high interest rates in both countries. Recently, market expectations regarding the pace of rate cuts have influenced the two-year value of  Sterling against the US Dollar, as investors anticipate faster rate cuts by the US Federal Reserve compared to the Bank of England. Sterling was trading at US$1.3246 on Tuesday, August 27^th, its highest level since March 2022.

The handling of monetary policy by officials in both countries is significantly impacting the Sterling-Dollar exchange rate. Bank of England Governor Andrew Bailey has stated that further interest rate cuts will not be rushed due to the uncertainty involved in holding inflation to an acceptable level. Meanwhile, the US Federal Reserve has indicated that "the time had come" for interest rate cuts.

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