Tags: stephen roach | markets | investors | trade | war | fallout

Stephen Roach: Markets Unprepared for Trade War Fallout

(Mark Lennihan/AP)

By    |   Friday, 20 July 2018 01:01 PM

Economist and Yale University senior fellow Stephen Roach warns that President Donald Trump’s trade tactics are sabotaging the economy and markets.

Roach claims investors are underestimating the impact from the trade war with China.

"The market just thinks this is typical Donald Trump bluster, and based on his performance on a lot of other issues," he said on CNBC's "Trading Nation." "But we’re in a situation where we’ve initiated tariffs," he said.

"The U.S., I think, will definitely feel the impact of these tariffs it’s placing on China. Consumers will be hurt as supply chain shift the higher cost to producers," Roach said. "We certainly have strong growth in the quarter that ended. But I would be reluctant to extrapolate that in the future, and our markets are not prepared."

Roach, who was Morgan Stanley Asia chairman for five years and is considered a leading authority on China, believes the U.S. will be unable to avoid damage.

"The idea that we’re in a position of strength is very myopic, very backward looking and misses the fundamental headwinds that loom out there," he said.

"If we are waiting for [Chinese President] Xi Jinping, to capitulate, then the situation is going to go from bad to worse," Roach said.

Meanwhile, Bloomberg reported that Trump’s big gift to Wall Street, earnings growth surpassing 20 percent, is in danger of being drowned out by the escalating trade and currency wars, stock fund managers warned. His belligerence toward the Federal Reserve could end up influencing policy, they said.

The S&P 500 Index is sitting close to unchanged in a week when every industrial company that reported results beat analyst estimates for quarterly profit. Equity futures were little changed Friday morning after the president lashed out at China and Europe for their weak currencies and said a stronger dollar and rising interest rates are undermining American competitiveness.

“We’re supposed to be looking at earnings, which are killing it, by the way," said Kim Forrest, senior portfolio manager at Fort Pitt Capital Group LLC in Pittsburgh. "We’re in a world of firsts, and tweeting about the Fed not once but twice doubles down that the president is trying to exert pressure. And I think the fact that we have this vision that they are outside of being influenced, that it shouldn’t be happening or they are above being influenced, coolly and calmly just look at the numbers and decide what to do from them, has always been an irrational thought. But these tweets are bringing that to the forefront.”

On Wall Street at midday Friday, U.S. stocks rose as solid results from Microsoft lifted technology stocks and eased rising trade tensions after Trump said he was ready to impose levies on $500 billion worth of goods from China, Reuters said.

Trump’s comments on tariffs, which followed after the United States and China imposed levies on $34 billion worth of each other’s goods this month, worried investors already grappling with the impact of a strengthening dollar on corporate results.

“Trade remains a major factor overall,” said Michael Dowdall, investment strategist at BMO Global Asset Management in Chicago. “But people are tracking strong economic data and earnings season, where expectations are pretty high.”

(Newsmax wire services contributed to this report).

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Economist and Yale University senior fellow Stephen Roach warns that President Donald Trump’s trade tactics are sabotaging the economy and markets.
stephen roach, markets, investors, trade, war, fallout
Friday, 20 July 2018 01:01 PM
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