Tags: emerging | markets | g7 | bitcoin | italy | uncertainty

Trump's Abrupt G-7 Decision Might Be Negotiating Tactic

Trump's Abrupt G-7 Decision Might Be Negotiating Tactic
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Monday, 11 June 2018 09:27 AM Current | Bio | Archive

G-7’s Impact

The G-7 has always been more about spin than about substance. After the Louvre accord in Parisis, France in 1987, the gathering has essentially become of photo opportunity rather than a proper policy forum.

However, spin can work both ways. President Trump’s somewhat abrupt decision to reverse U.S. agreement of the G-7 communique by tweet might be spun as a negotiating position.

After the G-7 summit, Canada’s leader Justin Trudeau reasserted his opposition to the US tariffs and vowed to press ahead with retaliatory moves on 1 July.

In response, Trump tweeted this morning from Singapore: “Fair Trade is now to be called Fool Trade if it is not Reciprocal. According to a Canada release, they make almost 100 Billion Dollars in Trade with U.S. (guess they were bragging and got caught!). Minimum is 17B. Tax Dairy from us at 270%. Then Justin acts hurt when called out!”

Please take care, there is not a trade war, yet, and the more likely spin, which is of course not a sure thing, looking forward is that isolation of United States is becoming a threat.

In case the threat would further grow, then that would become very relevant to financial markets and thus for investors.

Over half of the S&P earnings come from outside the United States.

It is worth reemphasizing that the current trade disputes are not like the 1930s for several reasons.

For now, for example, Europe is not engaged in a trade conflict with China, and China is not engaged in trade conflict with Japan, and Japan is not engaged in a trade conflict with Canada.

What we have today are bilateral tariffs on trade and the U.S. essentially is removing itself from the current global trade order, and the rest of the world is carrying on without them.

Now, it’s also a fact that global trade is a lot more complex than it used to be. Roughly eighty (80) percent of global trade takes place as part of long and complex global supply chains, and around forty (40) percent of global trade takes place within large multinational companies, moving goods from one subsidiary to another. Because of this situation, trade protection does far more damage to the domestic companies than has been the case in the past.

Besides all that, today it will be politics rather than data that are likely to be the focus for today.

About the Trump-Kim summit in Singapore we’ll have to wait and see what comes out.

Italy Uncertainty

The new Italian Finance Minister Giovanni Tria has been making reassuring noises over the weekend and has confirmed Italy’s strong commitment to the euro. After Mr. Tria’s made assurances that the country would stay committed to the euro. Italian bonds and stocks surged, in part caused by “covering shorts”, but also the euro rallied somewhat. As an investor I would prefer to remain cautious. For now, the conflict with the European Union (EU) would appear to be more about immigration than about economics.

Bitcoin

Meanwhile, the Bitcoin bubble has had another blow. The South Korean company Coinrail said on its website that its system was hit by “cyber intrusion” on Sunday, causing a loss for about 30 percent of the coins traded on the exchange. It did not quantify its value, but estimates are that about 40 billion won ($37.28 million) worth of virtual coins Conrail holds on behalf of other people were stolen. Crypto assets claim to offer security and democratization. In fact, the security is questioned and as with all bubbles, the benefits accrue not to the many, but to the few.

Emerging Markets

This week will be a difficult one for emerging markets. It is well known that a stronger dollar, rising interest rates and the unwinding of the Fed’s balance sheet at a moment we have rising Treasury debt sales in order to fund the U.S. tax cuts that cause a dollar liquidity squeeze all represent a series of serious problems for most of emerging markets.

Emerging markets’ risks directly related to the Federal Reserve’s handling of its policy will probably only be referenced to by Fed Chair Powell during his press conference on Wednesday after the Federal Open Market Committee (FOMC) will have (more than probably) have decided to raise the Fed funds rate by a quarter of point.

It will be interesting to see how the overall emerging markets will react after the little relief we have seen at the end of last week.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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However, spin can work both ways. President Trump’s somewhat abrupt decision to reverse U.S. agreement of the G-7 communique by tweet might be spun as a negotiating position.
emerging, markets, g7, bitcoin, italy, uncertainty
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2018-27-11
Monday, 11 June 2018 09:27 AM
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