Displaying items by tag: China

(New York)

There is a lot of turmoil going on in emerging markets right now. So much so that many are now considering it a full crisis. So far, though, the problems have yet to materially impact US markets. However, Barron’s explains that there is a mechanism through which EMs could cause trouble for the US and the rest of western markets. Because the trade war with China continues to escalate, the country’s yuan may devalue significantly, hurting all EMs. If this happens, the ripple effects through the global economy might be very strong. India and Mexico seem to be the safest EM destinations at present.

FINSUM: China is big enough to bring down the whole world economy, so the real threat here is the trade war first, and then how EMs compound that problem.

(Washington)

The US and Mexico have reached an important trade agreement after a year of acrimonious bickering over Nafta. The new deal, from which Canada is conspicuously absent, will put harder trade restrictions on Mexico. The deal is a sign that Trump and the US are willing to ease their fight with neighbors as the country ramps up a battle with China. The Trump administration was in a rush to get a deal done before a power change coming in Mexico. The deal will no longer be called Nafta, but the US-Mexico trade agreement.

FINSUM: This is encouraging from our perspective. The last thing we want right now is a multi-fronted trade war. Hopefully a deal with Canada can be reached as well.

(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.

(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.