Displaying items by tag: tariffs

(New York)

The trade war seems to be back on with full force. Trump spooked markets today by warning that he may impose higher tariffs on China. With that in mind, here are the stocks and sectors most at risk of big selloffs. Industrials and technology shares are the most vulnerable to tariff worries. It is difficult to say what stocks will be most affected because the potential impacts are widespread. However, the following list looks very at-risk: Colfax, Danaher, Emerson Electric, Fortive, Gates Industrial, 3M, and Kennametal.

FINSUM: We are very early in the volatility for this round of trade fears. Hopefully this minor panic will be the extent of it.

(New York)

The ECB put out research today making an argument that we hadn’t heard very much—that any trade war would hurt the US most of all. According to the ECB, “if Donald Trump’s administration was to raise tariffs and other barriers on imports by another 10 per cent — and other countries were to retaliate — growth would drop more sharply in the US than in either the euro area or China” (quoted from FT). The ECB found that one year of heightened trade tensions could knock 2% off US GDP.

FINSUM: The analysis of the actual economic impact may be credible, but the ECB is totally missing the point about the China. The risk for them is not just economic, but social and political—because they have an unelected government, officials there are under extreme pressure to keep the people happy with economic growth.

(New York)

When and if the US-China trade deal finally happens, make sure to sell. At least that is what Bloomberg is arguing. In a classic case of buy the rumor, sell the news, Bloomberg thinks the completion of a deal should be a sell trigger. The trade situation itself is shaping up as a lose-lose for investors. Either it will be a symbolic-only deal that is short on details and does little to actually resolve tension, or Trump may walk away from the table with no deal (like with North Korea). In either situation, it is hard to see the market celebrating.

FINSUM: We tend to agree with this view. The way this is shaping up, it does not seem like there is going to be some grandiose trade accord that solves everyone’s issues.

(Washington)

In what sounds like a classic case of “buy the rumor, sell the news”, a major Wall Street figure is arguing that as soon as the US and China reach a trade deal, the big rally in risk assets will be over. The former CEO of Cantor Fitzgerald, Shawn Matthews, argues that “Right now, it’s a risk-on mentality -- you want to be long riskier assets until you get a deal with China … When that happens you certainly want to be looking to scale back”. One of Matthews’ worries is that bond markets are following suit, signaling to him that this is a false rally. “If it was truly a risk-on world and people believed it and it was an extended trade, then you would see the 10-year start to back up. That’s a clear sign there’s some concern about what’s going on out there”, said Matthews.

FINSUM: This is quite an interesting take on the whole situation. We are going to hold off on giving our full view until we have had more time to digest, but we thought this angle was definitely worth sharing.

(Beijing)

Those of you who read our opinions on how the trade war with the US is affecting China will know that one of main concerns is about the relationship between the government and the people in China. This week, Xi has echoed that warning. The Chinese leader stressed the need to maintain political stability in the face of economic challenges. The warning, which came at an unusual meeting of Chinese leaders, shows the ruling party’s anxieties over the social implications of the slowing economy.

FINSUM: Chinese leadership is in a tight jam. On the one hand they have the US squeezing them with tariffs, and on the other, they have the need to maintain the economy’s strong growth to keep people happy. Remember that leaders are unelected, so their grip on control is very tied to keeping everyone satisfied.