Tags: China | trump | china | trade war | august

China Trade War Won't Help Market's Dog Days of August

China Trade War Won't Help Market's Dog Days of August
(Jae-Young-Juchina/Dreamstime)

By
Monday, 05 August 2019 10:44 AM Current | Bio | Archive

President Donald Trump last week upset the markets when he tweeted “...during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%...”

Stocks, after having plunged on Thursday and Friday continue today firmly in the red or better said, continued in a full “risk off mode”.by plunging about 600 points in early trading

This also applies for bonds.

The Wall Street Journal reported that Trump overruled advisers to ramp up tariffs on China after a heated exchange in which he insisted levies were the best way to make Beijing comply with U.S. demands.

For investors, this is important to keep in mind, for quite some time to come, as I can’t imagine how a quick solution and really comprehensive trade deal with China can be worked out and agreed on within the coming months.

It’s also important to take note of that Trump’s advisers which included his national-security adviser John Bolton, top economic adviser Lawrence Kudlow, China adviser Peter Navarro and acting chief of staff Mick Mulvaney, all of them, save Mr. Navarro, a China hawk, adamantly objected to the new tariffs.

The Journal explained that battle lines are hardening in Beijing as well—raising prospects that a deal may be put off until after the U.S. presidential election next year.

In the meantime, the Chinese currency, the Yuan (CNY) has fallen (in fact, risen because higher means weaker) through the psychologically important level of 7 Yuan (CNY) to the dollar and brought hereby its depreciation level to a “record” low for “trading”.

The People’s Bank of China said in a statement today the currency’s slump was “due to the effects of unilateralist and trade-protectionist measures and the expectations for tariffs against China”.

For investors, it will also be important to see how China’s important trading partners like for example the European Union (EU), Japan, etc. will react to the sudden important depreciation of the Chinese Yuan (CNY).

Trump on Monday tweeted “China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”

For investors all this doesn’t bode well as uncertainty because of an accelerating trade dispute between the U.S. and China that is on its way to dominate and therefore hurt business confidence in a huge part of the world economy.

For example, China could allow “weakness” of its currency, the Yuan (CNY) for which I wouldn’t rule out 7.20 CNY, or even higher, to the dollar, which would mean bad news for practically everybody.

In the context of all this, investors could do well keeping in mind what Warren Buffett wrote in his latest letter to the shareholders of Berkshire Hathaway Inc. “In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects.”

Today, as an equity investor, I personally wouldn’t buy the “dip” that is in the making. I’m still convinced there is still much more to come… I would stay with liquid safe havens like U.S. Treasuries.

All that said, it could also be helpful keeping in mind that “historically” the month of August has proven not being such a good month for equities. Over the last 25 years non-negligible amounts of stocks have been sold in August in “prepositioning” moves for “multiple” reasons before the month of September that has seen average declines in:

  • The Dow Jones Industrial Average (DJIA) of 0.8 percent;
  • The S&P 500 of 0.5 percent while
  • The NASDAQ composite index that was first established in 1971 has declined an average of 0.5 percent.

These are, of course, only averages and are certainly not written in stone.

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

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
HansParisis
For investors all this doesn’t bode well as uncertainty because of an accelerating trade dispute between the U.S. and China that is on its way to dominate and therefore hurt business confidence in a huge part of the world economy.
trump, china, trade war, august
686
2019-44-05
Monday, 05 August 2019 10:44 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved