Displaying items by tag: trade war

(New York)

We don’t want to say that investors are sleepwalking into it, but in many ways it seems an apt metaphor. Whether stock investors like it or not, the US trade war with China is continuing apace. The two countries’ negotiations on the issue last week went nowhere, and the US is about to hit Beijing with $200bn more in tariffs. Their response will hurt the US economy, as many of them will be on consumer goods, which could raise prices and lower demand. Industrial stocks are likely to be hit by Beijing’s retaliations. 50% of all Chinese imports will soon be subject to new tariffs.

FINSUM: We are starting to wonder if tariffs might lead to “stagflation” in the near term. In consumer demand ebbs at the same time as prices rise for goods, it seems like a perfect recipe for stagnation and inflation.

(Washington)

The US and China ended two days of trade war negotiations yesterday, and apparently there was little progress. Both sides pressed ahead with enforcing $16 bn of further tariffs on one another. The deputy White House Press Secretary commented at the end of the negotiations that the two countries “exchanged views on how to achieve fairness, balance and reciprocity in the economic relationship”, but made no mention of any material progress being made. One senior Trump administration official added “in order to get a positive result out of these engagements, it’s really critical that they address the fundamental concerns that we have raised. We haven’t seen that yet”.

FINSUM: While the market seemed very hopeful about these talks, the trade battle with China looks likely to keep going for a while yet as the issue seems to be quite intractable.

(New York)

Okay, there is a trade war going on. But even still, industrial stocks look too cheap, at least according to Barron’s. The Industrial Select SPDR is up less than 2% this year, way behind the broader market because of fears the sector will get hammered by a trade war. Compounding that is the worry that the sector is past the peak of its cycle. However, the sector is still posting strong growth and good earnings. Stocks like Boeing and Caterpillar had big gains last year, but have weakened considerably recently. Recent earnings, though, were good, showing that core machinery sales continued the 15% annual growth they have been showing for several quarters. In seems the worst could be behind the sector.

FINSUM: It is too early to say whether the sector is out of the woods, but we would say that a 2% gain this year is not exactly what we would think of as the pre-condition for calling something very cheap.

(New York)

Citigroup says that the US just crossed a scary economic threshold. The bank’s well-known economic surprise index shows that the US is now at greater risk of negative economic surprises than is Europe, the first time that has occurred in some time. While the economy has been doing well, the trade war and a multitude of other factors, including the Fed, mean the US is more at risk of an economic downturn than Europe.

FINSUM: It is pretty easy to say that a country whose growth is at 4.1% is at risk of a downturn. It would not take much for the US to slow down considering its growth appears to be peaking.

(Washington)

Trump spooked currency and Treasury markets yesterday. Speaking in the context of the US’ trade tussle with China and others, Trump said he wasn’t thrilled with the Fed’s interest rate hikes. He said that in the trade battle with China, the Fed should be accommodative with its policy. Trump called Beijing a currency manipulator, and said the Euro was being manipulated also. Speaking on Trump’s comments and his new consistency in criticizing the Fed, one analyst said “This is now a serious headwind to the dollar”.

FINSUM: It is true that a constantly strengthening currency is difficult to deal with in a trade war, but that the same time, the Fed’s job is to look at US economic fundamentals. That said, how rate decisions would affect the economy via a trade war do seem like they would be within the Fed’s purview.