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Trump Wary of Tariffs Hurting Stock Market

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Friday, 01 February 2019 08:11 AM Current | Bio | Archive

U.S.-Sino Trade Negotiations

On the subject of imports, there is a lot of ‘hope’ for a better outcome of the ongoing U.S.– Sino trade tensions than now is the case. President Trump is suggesting a personal meeting with Chinese President Xi to talk trade as did in fact China’s President Xi from his side, the South China Morning Post reported.

The discussions between China and the United States have apparently made progress, but details of that progress have not been revealed. What we have for the time being is some kind of a deal in the making which limits the threats of escalation in the trade conflict, but which does not solve the bigger points of contention.

Taking a look at the ‘Statement of the United States Regarding China Talks’ that was released by the White House yesterday could be helpful in that sense. In the statement we read among a lot of other things of course: “President Donald J. Trump has reiterated that the 90-day process agreed to in Buenos Aires represents a hard deadline, and that United States tariffs will increase unless the United States and China reach a satisfactory outcome by March 1, 2019.”

As an investor, I think it could also be helpful to think back for a moment at the way the President of the European Commission Jean-Claude Juncker managed to persuade President Trump to do during his visit to the White House on July 25 last year because that’s a likely model that could be repeated in some way this time around.

What happened then is relatively well described in the ‘Remarks by President Trump and President Juncker of the European Commission in Joint Press Statements’ that was published by the White House on July 25, 2018.

At the same time, President Trump does seem to be aware that a tariff is simply a tax on equities and it is thus keen to avoid escalation for fear of hurting the equity market further, but it does seem unlikely that the President will give up the right to tweed aggressively about China during the 2020 presidential election campaign.

Jobs Friday

After Fed Chair Powell showed his dovish side on Wednesday, we’ll get some real economic data today in the form of the U.S. employment report. Well, it’s sort of real economic data.

The report is survey based that is heavily revised and average hourly earnings might as well not be published for the use it is as an indication of compensation for employment, but with the partial government shutdown, depriving economists from so much information recently, anything is to be welcomed at this stage.

What is likely to be shown in the employment report is a labor market that is doing just great. The strength of the labor market is an important foundation for U.S. economic growth. What is especially important is the fact that wage growth, running at over 4 percent on more reliable numbers than average hour earnings, has broadened out.

More and more Americans are getting decent pay increases, and, of course, if you give an American more money, they will spend it, generally on imported goods.

Eurozone Final Manufacturing PMI

From the Eurozone we just got the final data of IHS Markit Eurozone Manufacturing PMI that came in at 50.5 for January and was up from 51.4 in December. For investors it could be helpful to take note that Germany came in at 49.7, which is a 50-month low and Italy came in at 47.8, which is a 68-month low.

There is certainly no risk of making an overstatement saying that the Eurozone manufacturing sector is close to stagnation.

For investors it’s important to consider the possibility that this situation could make the European Central Bank (ECB) doing the ‘unthinkable’ that is doing another round of monetary policy ‘easing’. If that were to happen, then the euro would have no other way to go than to weaken against the dollar.

Chris Williamson, Chief Business Economist at IHS Markit commented: “The January PMI adds to the likelihood that the manufacturing sector in the Eurozone is in recession and will act as a drag on the economy in the first quarter. Some temporary factors remain evident, including an auto sector that is struggling to regain momentum after new emissions regulation and some signs of ‘yellow vest’ disturbances dampening demand in France. However, there appears to be a more deep-rooted malaise setting in, which reflects widespread concerns about the destabilizing effect of political uncertainty and the damage to exports from rising trade protectionism.”

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

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President Trump does seem to be aware that a tariff is simply a tax on equities and it is thus keen to avoid escalation for fear of hurting the equity market further.
trump, tariff, stock, market
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2019-11-01
Friday, 01 February 2019 08:11 AM
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