Displaying items by tag: US

Thursday, 30 May 2019 08:42

The Next Stage of the US-China Trade War

(Washington)

The next phase of the US-China trade war is coming, and it looks like it may be even worse. At the beginning both sides focused on levying higher tariffs on more goods, then Trump took the step of limiting China’s access to semiconductors with his ban on Huawei. Now the next phase may be much more specific and potentially damaging for the US—China is likely to limit the US’ access to rare earths used to make all kinds of technology devices. Access to such rare earth elements is one of the biggest US weaknesses in tech and Beijing has the power to block access because the US imports 80% of its rare earths from China.


FINSUM: It is hard to tell how bad this could be. On the one hand, the total US imports of Chinese rare earths are only $160m, but on the other, if there is not another easy source then it could hamstring the businesses that use them.

Published in Eq: Tech

(New York)

The chances of a war breaking out with Iran are not minute. They are probably not high, but significant enough that it is worth having a plan. It may be unseemly to think about asset prices during armed conflict, but just because a war has broken out does mean one’s duty to protect clients ends. The key thing to remember is not to panic. Selling into a panic is a bad idea, and historically speaking, the market tends to be higher six months later anyway. Generally speaking, that is the trend in past armed conflicts. There is an initial fall in stocks, only to be followed by a subsequent rise over the next six months to above the starting level.


FINSUM: We do not think a war with Iran will happen. This seems more like simple political wrangling.

Published in Eq: Total Market
Tuesday, 28 May 2019 12:44

US Real Estate is Looking Shaky

(Los Angeles)

The US real estate market has looked weak for over a year now, and things aren’t really improving. While the market has not seen the bottom fall out, it is going through a weak period. New data on home sales shows that home price gains in 20 US cities have slowed for the 12th straight month. Property values in March were up 2.7% from a year earlier, their weakest gain since August 2012.


FINSUM: The market is steadily slowing. One might hope that falling yields could help perk up the market, but the threat of the trade war will probably keep buyers anxious.

Published in Eq: Real Estate
Tuesday, 28 May 2019 12:43

The Trade War May Be Deflationary

(New York)

The market has been worried that the trade war may prove inflationary. Higher tariffs would mean higher prices passed along to customers, in turn raising inflation. This is scary because it means the US could get caught in a stagnant economy with higher inflation, which would keep the Fed from cutting. However, the reality is that the trade war may in fact be deflationary instead. The reason why is two-part. Firstly, governments, businesses, and consumers are likely to take actions to off-set the rise in costs; and secondly, the economic toll may hurt the economy so that prices cannot rise.


FINSUM: We do not think tariffs will be inflationary. Thinking of them as automatically inflationary is very narrow-minded, as it does not actually take into account the effects tariffs will have on aggregate demand.

Published in Eq: Total Market
Thursday, 23 May 2019 08:35

China is Weaponizing Its Treasuries

(Beijing)

China has a massive hoard of US Treasury bonds worth over $1.2 tn. Many have speculated that as part of a trade war with the US, Beijing may flood the market with these bonds in an effort to enforce pain on the US economy. Recent market data shows it is likely already happening. China recently dumped $20 bn of Treasuries, a move that cannot be accounted for as part of normal market flows. The move was China’s largest sale in more than two years. The sale came in March, just before US-China trade tensions were again heating up.


FINSUM: Our view is that China is more likely to threaten doing this and perhaps do some in small chunks than actually pull the trigger. However, even if they do, yields have fallen so far recently that it is hard to imagine they would rise much beyond where they were a few months ago.

Published in Bonds: Treasuries
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