At the G-20 meeting in Japan later this week, global leaders from the world’s largest economies are set to make headlines. Front and center will be the get-together between President Trump and President Xi. In the midst of an escalating trade war, the two leaders are finally set to meet to size each other up. What will transpire is anyone’s guess, but the markets are hoping for good news so that stock prices can continue to rally. The Kapital News isn’t so certain of any good-to-great news other than President Trump likely tweeting or commenting that things are “great.” Well, we’ve heard this song and seen this dance before, so forgive us if we don’t take the President at his word on this one anymore. Both nations have much to gain and much to lose. However, we are talking about two world leaders that like to exude a “strong-man” figure, so it’s unlikely that either will cave-in to the other’s demands easily. Escalation? Truce? Or deal? We’ll soon find out – stay tuned to The Kapital News.
So President Trump was and is back at it with his favorite tariffs. This time, he’s targeting the Mexicans and threatening new tariffs unless they act on the southern border. Well no surprise, in an 11th hour deal, the tariffs are now indefinitely suspended. Of course, the President is already back out there saying that if the Mexicans do not follow through with the new deal, then the tariffs will go into effect. This news has moved the markets and now we question how this is going to effect the trade negotiations with China. Will they be able to trust a President who is so willing and eager to threaten more tariffs even after striking a deal? You know, like the USMCA…
Rest easy everybody, because Jay Powell, Chairman of the Federal Reserve, says that while the US corporate debt market requires some “reflection,” it is not a subprime crisis. We happen to agree with the Fed Chairman because it is not another subprime crisis, it will be worse than the subprime crisis. We also have other central banks the world over getting ready to cut interest rates, if they haven’t already. This is a complete 180, to what we were hearing last year from central banks whom were either in wait-and-see mode or were more likely to hike interest rates. Now of course we’re in the midst of slowing global demand and policy tools are wearing thin, so central banks are coming to the “rescue.” Only problem is, even some of them are starting to question the efficacy of their own policies – uh-oh!
So we have a new deal, same as the old deal, as far as Brexit is concerned. PM Theresa May was out today providing new details to her deal to finally leave the EU. Of course this has to go to a vote before Parliament – for the 4th time mind you. This deal is basically the same, with a few “carrots” provided to appease some members of Parliament to finally pass the deal – will it pass is anyone’s guess. We also look at the underemployment rate regarding recent college grads and how this is likely to take center stage during the 2020 campaign. We have the President on one side, claiming that this is the best economy in US history, and on the other side, we have people who live in the real world, who are sacked with debt, are underemployed, and see a different economic picture. It will be interesting to see how this all unfolds and we discuss some scenarios.
We have a lot of events taking place this week along with economic headline news. Of course we have the EU elections, we had the Aussie and Indian elections, the Brexit chaos continues, a further escalation in the US/China trade war, Ford is cutting 7,000 jobs globally, and a Fed index is showing a slowing in US growth, and more. Lots to discuss, so let’s get to it!
We were on a roller-coaster of a ride this week with tweets and statements from The White House as well as comments from the Chinese. All of this taken together has whipsawed markets to the upside and to the downside. Given recent remarks, it appears that the US/China trade negotiations are at a standstill and may remain so until and unless President Trump and President Xi meet during the G20 meeting next month in Japan. Therefore, we may very likely see a continuation in volatility until there is further clarity surrounding the trade war. Nevertheless, be on the lookout for more tweets!
Despite having some poor economic news out of the US this morning regarding retail sales and manufacturing output, like clockwork, the President came out with a statement to get markets moving to the upside. We finally witnessed the markets responding to some fundamental economic news as they were in the red in early morning trading. Nevertheless, the President just happened to come out and make remarks about potentially placing a 6-month hold on imposing tariffs on autos from the EU and Japan. More market manipulation – unfortunately.
It’s been on the back burner, but not out of mind, and yes, we’re talking about Brexit. The PM’s deal is set to be voted on for a 4th time and so we’ll see in a few of weeks if the 4th time is the charm for Theresa May. Given the US/China trade war, there is a large and powerful political lobby that is caught in the crossfire – farmers. The President has stated repeatedly that the US will continue to subsidize farmers. Given the politics of the situation, is the President attempting to “buy” votes from those key swing states that he needs to maintain his office? Lastly, we discuss the sabre rattling regarding Iran and more broadly the effects of war and how we need a new level of consciousness here in the 21st century to end all wars.
How much longer will this “trade war” continue? Everything was supposed to be “great,” historic,” “fantastic,” “remarkable,” etc etc etc… Now we know that the talks were taking too long and that additional tariffs needed to be increased on Chinese goods – this is per the President’s tweets. The Chinese have retaliated and global equity markets are selling-off. A tweet kick- started this market selling – will new tweets counter this and will we be “risk-on” again later this week? It’s anybody’s guess, we’re in the financial world of Oz, and anything can happen, but these tactics on the US side and their “success” are coming into question. Who blinks first?
The trade war is on! What remains, is how far will both sides go in their escalation. So far, we know that the USA has increased tariff rates and is looking to perhaps do so regarding additional Chinese goods. In retaliation, the Chinese have increased tariffs on additional US goods, which are slated to be effective on June 1st. All of this can change on a dime. We never know what will be said or tweeted out minute-to-minute, but what we do know is that global equity markets have been selling-off rapidly over the last week and today. Will this continue or will the markets cling to hope of a trade deal? Also, the politics of this become interesting as the US is in the early stages of the 2020 Presidential campaign. Will the Chinese sit back and wait or will a deal be struck?
