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Iranian Nuclear Deal, China Trade Spat Keep Investors on Edge

Iranian Nuclear Deal, China Trade Spat Keep Investors on Edge
(Dollar Photo Club)

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Monday, 07 May 2018 10:15 AM Current | Bio | Archive

There are two events this week, both originating in the United States, that are relevant for investors.

First, there is the prospect of President Donald Trump deciding whether to honor the U.S. commitment to the Iranian nuclear deal.

This is relevant for the price of oil if the supply of Iranian oil to the global economy is impacted. Clearly, the oil markets have priced in some possibility of disruption.

The question is simply how disorderly things are likely to get. 

The renowned diplomatic skills of the British Foreign Secretary Boris Johnson are to be brought to bear on this matter. The Foreign Secretary flew to Washington on Sunday for a two-day visit to meet Vice President Mike Pence and national security advisor John Bolton where the discussions will center on Iran, North Korea, Syria and of course other issues.

Trump has given Britain, France and Germany, who still back the Iranian nuclear deal, a May 12 deadline to fix what he views as its flaws. These include the Iran nuclear deal’s failure to address Iran’s ballistic missile program, the terms by which inspectors visit suspect Iranian sites, and “sunset” clauses under which some terms expire.

Johnson said in an opinion piece he wrote for the New York Times: “At this delicate juncture, it would be a mistake to walk away from the nuclear agreement and remove the restraints that it places on Iran. I believe that keeping the deal’s constraints on Iran’s nuclear program will also help counter Tehran’s aggressive regional behavior. I am sure of one thing: every available alternative is worse. The wisest course would be to improve the handcuffs rather than break them.”

Iran has said it will not renegotiate the nuclear agreement.

The second event is the trade dispute with China at a moment that the U.S.-China trade deficit has gotten even wider.

The merchandise trade gap with China widened by 16 percent to $91.1 billion in the first three months of the year, according to Commerce Department figures that were released last Thursday. China is America’s biggest trading partner so far this year.

On the trade dispute, there are no pressing deadlines this week, but there is the aftermath of the trade talks from last week, where the rather ambitious demands of the United States have been leaked to the media.

The problem with having the rather ambitious U.S. demands leaked is that Trump may feel that some approximation of these rather ambitious demands has to be met before his Twitter feed can declare “We won” in the trade dispute.

It seems relatively unlikely that the rather ambitious demands will be met in a way that might be tweeted as a victory.

It is also worth reiterating that in the event of Trump taxing U.S. consumers “aggressively,” Chinese exporters, but also others, to the United States have already experience in avoiding tariffs (taxes) and will most probably find ways to avoid these tariffs now again.

Since the late 1990s, there is publicly documented evidence that for example tariff evasion at the U.S. border tends to take the form of underreporting unit values for differentiated products.

Perhaps, a third of any trade tariff (tax) is only going to be taken effect.

Besides all that, there may be a glance or two from investors in the direction of the Argentinian peso in the wake of last week’s rather dramatic interest rate increases by the Argentinian Central Bank. Please take notice, for investors that is a localized issue that has little prospect of threatening other emerging markets.

Last week, the Argentinian central bank has increased its key interest rate three times, on April 27, and then on Thursday and then again on Friday, raising it from 27.25 percent to 40 percent.

A spike in the U.S. dollar over the last three weeks and expectations of accelerating U.S. inflation have soured investor appetite for emerging markets, which is important for investors.

The specifics of Argentina, stymied by one of the world’s highest inflation rates, have made it stand out as particularly vulnerable to investment losses. The inflation rate in Argentina was recorded at 25.60 percent in March this year.

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

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A spike in the U.S. dollar over the last three weeks and expectations of accelerating U.S. inflation have soured investor appetite for emerging markets, which is important for investors.
iranian, nuclear, deal, china, trade, investors
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2018-15-07
Monday, 07 May 2018 10:15 AM
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