Tags: trump | xi | g20 | summit

Markets May Revolt in Wake of Additional Tariff (Tax) Increases

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Friday, 30 November 2018 10:43 AM Current | Bio | Archive

G-20 Summit 

The two-day annual meeting of the Group of 20 industrialized nations starts in Buenos Aires, Argentina, at a moment the G-20 faces questions about its relevance for dealing with ongoing crises.

The main focus will be on President Donald Trump and Chinese President Xi Jinping and to see if both leaders can find some kind of a way for starting to resolve their many differences.

I personally am not optimistic but I really hope that I’m wrong.

Anyway, intense scrutiny will be on the sidelines of the G-20 and the dinner between Xi and Trump.

Markets have been rather battered by the rise of U.S. tariffs and the threat of more tariff hikes to come in the United States.

Equities are never normally big fans of tax (tariff) increases and tariff (tax) increases on trade are almost always specifically targeted at equities.

The latest media reports suggest that there are plans for trade talks between the United States and China in December if a “truce” or handshake deal can be agreed on in Buenos Aires, but that depends on the personalities involved and that enhances the markets’ uncertainty. 

It appears that legally there isn’t not enough time for Trump to stop the 25 percent tariff (tax) hike and keep the 10 percent tariff on U.S. imports of goods partially made in China. Both tariff increases could be revoked or the 25 percent tariff could be reversed after it is implemented. If so, that may complicate negotiations. The problem is the preannouncement of the 25 percent tariff.

Unlike the European handshake deal where there were threats but no actual decision the tariff had been taken.

Let’s wait and see and hope for the best.

FOMC Minutes Released

Meanwhile, the minutes of the  Federal Open Market Committee (FOMC) essentially confirmed a December Fed rate increase, as much as these things can be confirmed, but there was no clarity on the number of rate increases on 2019.

Growth in the United States and indeed elsewhere is likely to be slower next year.    

This year has generally been an “above” trend growth year, so, slowing growth towards trend is normal and nothing to be afraid of.

It is also normal to continue tightening monetary policy in an environment where growth is slowing from above trend to trend.

However, the Fed’s language might perhaps change. There was a suggestion in the minutes that the “further gradual increases” phrase that has been used to describe rate hikes may disappear from the next statement. That would signal a more data dependent Fed, which might be more hawkish or more dovish depending on the data, which is reasonably enough at this stage of the cycle.

The FOMC minutes read: “… the Committee’s communications in its postmeeting statement might need to be revised at coming meetings, particularly the language referring to the Committee’s expectations for “further gradual increases” in the target range for the federal funds rate … it might be appropriate at some upcoming meetings to begin to transition to statement language that placed greater emphasis on the evaluation of incoming data in assessing the economic and policy outlook; such a change would help to convey the Committee’s flexible approach in responding to changing economic circumstances.”

Besides that, New York Fed President John Williams, who is the leading economist at the Fed, will speak about and participate in panel on “The Global Economy: Addressing a Future Downturn” at a meeting of the Group of Thirty in New York, NY.

Japan Industrial Production Surprises on Upside

Japanese production data showed a 2.9 percent month-on-month rate of growth in October, which was the fastest pace since January 2015.

The stronger-than-expected rise prompted the government to raise its basic assessment for the first time in about a year, saying output is “picking up slowly.” It was certainly a positive signal at a time when markets have tended to be focusing on looking for bad news first.

China ‘Official’ PMIs for November Meet Expectations

The official non-manufacturing Purchasing Managers’ Index (PMI) fell to 53.4 from 53.9 in November but remained well above the 50-point mark that separates growth from contraction.

The services sector accounts for more than half of China’s economy. The official manufacturing PMI came in at 50.0, down from 50.2 in October. The official composite PMI, which covers both manufacturing and services activity, slipped to 52.8 in November, from October’s 53.1.

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

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Equities are never normally big fans of tax (tariff) increases and tariff (tax) increases on trade are almost always specifically targeted at equities.
trump, xi, g20, summit
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2018-43-30
Friday, 30 November 2018 10:43 AM
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