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Tags: investor | patience | golden | rule

Investors Must Stay Patient With Uncertainty All Over the Place

Investors Must Stay Patient With Uncertainty All Over the Place

By    |   Tuesday, 23 June 2020 09:49 AM

On Monday evening, in Washington, D.C., there was an intense back and forth over trade, not between the U.S. and China, but between President Donald Trump and Peter Navarro, who serves in the Trump administration as assistant to the president, director of trade and manufacturing policy, and the national Defense Production Act policy coordinator.

Navarro, in a Monday night interview on Fox News when answering a question about if Trump wanted to maintain the agreement and ensure that China made good on its commitments, said “It’s over. Yes.”

Trump reacted and corrected very quickly at 10:22 pm via his Twitter account by saying: “The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!”

As stock futures dropped, Mr. Navarro quickly sought to clarify his comments, telling the Wall Street Journal they had been “taken wildly out of context.”

“They had nothing at all to do with the phase-one trade deal, which continues in place,” he said of his comments. “I was simply speaking to the lack of trust we now have of the Chinese Communist Party after they lied about the origins of the China virus and foisted a pandemic upon the world.”

In the meantime, financial markets didn’t like Navarro’s “it’s over” response at all.

For example, the E-mini S&P 500 futures lost in about 40 minutes as much as 1.6 percent before recouping the sudden losses.

Now, it seems very unlikely that Trump would seek to abandon the U.S.-China trade deal at this stage. In case the president would have the intention to do that, which I seriously doubt, a better period would be September or October. In fact, that could be the time when trade tariffs/taxes might rally his support base, and the economic damage to U.S. companies and U.S. consumers would not be felt until after the November presidential election.

Even then, the trade deal with China is unlikely to be abandoned as Trump can present this as a policy success in the election campaign.

Besides that, Trump has suspended, until the end of 2020, the issuance of visas for people seeking work in the United States, suggesting that unemployed Americans might fill the jobs instead. 

The net effect of this is likely to be marginally for U.S. employment overall. This is because visas like for intercompany transfers, tend to help firms perform better. Companies want the right person in the right job at the right time. Putting obstacles in achieving that, disrupts the firms’ activities, and it may force firms to relocate some of their economic activity to areas with more labor market flexibility.

This is a temporary measure and is aimed against the levels of unemployment that the U.S. is experiencing, the damage to the U.S. labor market is likely to be relatively minor, but nevertheless, the damage is likely to be focused in higher value added sectors of the economy, the BBC reported.

Over in the U.K., in the interminably EU-UK divorce process, and in the ongoing UK-Japan trade negotiations, we have learned that Japan has given the UK until the end of next month, which is in about six weeks, to conclude the current trade negotiations.

Investors could do well keeping in mind that the UK and Japan have already an economic partnership agreement.

Securing trade deals is a top priority for the UK because of the Brexit limits.

As the UK is entering a post-Brexit world, securing trade deals is a top priority for the country. Now, in case the UK and Japan couldn’t come to an agreement, the two countries couldn’t trade under the terms of the World Trade Organization (WTO), which, of course, would be a serious negative for both sides, the Japan Times said.

Talking about the World Trade Organization, the WTO informed that the volume of merchandise trade in Q1 shrank by 3 percent and that for Q2 initial estimates point to a decline of 18.5 percent year-on-year.

The WTO also writes that looking ahead to 2021, adverse developments, including a second wave of COVID‑19 outbreaks, weaker than expected economic growth, or widespread recourse to trade restrictions, could see trade expansion fall short of earlier projections.

All this is important for investors to keep in mind when planning median to longer term investments.

In simple words: “It’s still uncertainty all over the place!”

In my opinion, remaining patient could be the golden rule.

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

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It seems very unlikely that Trump would seek to abandon the U.S.-China trade deal at this stage.
investor, patience, golden, rule
Tuesday, 23 June 2020 09:49 AM
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