INDIA: US Team To Visit For FTA Talks 24 Aug As 25% Tariffs Confirmed By Trump
Reuters reports that according to an unnamed gov't source, the Indian gov't has engaged with the US for further trade talks, with a US delegation set to visit Delhi on 24 August. These will be the sixth round of talks on a formal bilateral trade agreement, with NDTV reporting in late July that an announcement on an interim deal could be announced as soon as September or October.
- Reuters source also claims that the gov't expects around USD40bln of Indian exports to be hit by the US' 25% 'reciprocal' tariffs confirmed by President Donald Trump on 31 July, and set to come into force by 7 August. The Trump administration has also indicated an "unspecified penalty" on India for continuing its purchases of Russian hydrocarbons.
- The scale of the reciprocal tariffs puts the US-Indian relationship in a tricky position. PM Narendra Modi was the first foreign leader to visit the White House following Trump's second inauguration, with Minister for External Affairs S. Jaishankar saying in March that “our relations with the US are probably at the best ever that they have been.”
- However, New Delhi may have been caught off guard by the hardline transactional nature of the US' stance on trade talks. The significant political power of India's agricultural sector, combined with the US viewing dairy imports as a particular sticking point (according to the Washington Post) could limit the prospect of a swift agreement being reached.
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BOE: Taylor's neutral rate estimate is low; will we hear from other MPC members?
- Looking at neutral rate the February MPR, it pointed to model-based estimates of the neutral rate at 2.25-3.75%.
- As we noted above in our STIR bullet the latest BOE MaPS (Market Participants Survey) has a median estimate of neutral of 3.50% (Mann in particular has been a fan of referencing the MaPS neutral estimate).
- Taylor's estimate today of 2.75-3.00% is therefore on the low side - considerably below the 3.38% terminal rate priced in by markets at present.
- Taylor is due to appear on the panel in Sintra at 11:30BST and he is due to speak again on Friday evening at the LSE on the neutral rate (with text out 16:00BST on Friday). He is expected to set out further details on his estimation for neutral in this speech.
- What will be interesting is whether other MPC speakers discuss their expectations of where neutral is - or whether they stick to the script of "it's hard but we're not there yet".
- Governor Bailey said yesterday when asked on neutral that they make the assessment of whether they think Bank Rate is currently restrictive on a meeting-by-meeting basis.
- When the "restrictive" part of the guidance changes, markets may well reassess their terminal expectation. This is possible in August, but with so much uncertainty, August may be too soon for other MPC members to make this assessment - even if they do think the neutral rate is higher than Taylor.
- Any pushback from MPC members that neutral is higher and being approached would likely be more market moving than Taylor's comments today, however.
US TSY FUTURES: Short Setting Most Prominent On Tuesday
OI data points to net short setting in FV through US futures on Tuesday.
- Modest net long cover was seen in TU futures, while it is hard to make any real inference when it comes to WN positioning, with the price of that contract unchanged on the day come settlement.
- Net short setting provided the dominant positioning impulse on the curve.
| 01-Jul-25 | 30-Jun-25 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,309,721 | 4,312,653 | -2,932 | -112,934 |
FV | 7,118,263 | 7,115,835 | +2,428 | +105,581 |
TY | 5,057,110 | 5,040,148 | +16,962 | +1,129,292 |
UXY | 2,444,155 | 2,429,002 | +15,153 | +1,334,227 |
US | 1,807,751 | 1,795,646 | +12,105 | +1,530,824 |
WN | 1,942,612 | 1,934,339 | +8,273 | +1,514,894 |
|
| Total | +51,989 | +5,501,885 |
