The ongoing US-China trade war has caused significant volatility in global markets by itself for more than a year now. Other factors, like the Brexit mess and Hong Kong protests, have further raised uncertainty levels. Add to that important interest rate decisions by some of the biggest economies in the world, and markets can be a tricky place.
Interest Rates and Economic Growth Concerns
The ECB last week cut interest rates deeper into negative territory and announced further economic stimulus. This is the biggest stimulus from the ECB in the last 3 years as Draghi (ECB President) expressed serious concerns about the ailing growth in the eurozone.
This week, the US Fed is set to make their interest decision on Wednesday. Many expect another 0.25% cut in interest rates after the US Fed cut interest rates for the first time in a decade in July.
A lot of people feel the US is unnecessarily using tools to stimulate their economy when it is not yet needed, which can lead to serious problems and a shortage of options when they do need it.
Although global growth is deteriorating, and it is evident in the economic data coming out of the Eurozone and China, the US economy has held up well. A lot of people feel the US is unnecessarily using tools to stimulate their economy when it is not yet needed, which can lead to serious problems and a shortage of options when they do need it.
Tensions between the US and China eased this past week as both parties seem keen to de-escalate recently heightened tensions.
China took the first step last week Wednesday and exempted a range of American goods from additional tariffs. Interestingly, they did not initially exempt soybeans and pork which are key exports for the US. Trump reciprocated by delaying the 5% increase on some Chinese products from 1 October to 15 October – he called it a gesture of goodwill as the 1st of October marks the 70th anniversary of the People’s Republic of China. Last Friday, China finally encouraged Chinese companies to buy more US farm products (including soybeans and pork) and also excluded these products from additional tariffs.
In response to this, the US stopped short of new all-time highs for the S&P on Friday, before closing slightly lower.
It is difficult to gauge the underlying reason for these recent developments. Did the global growth concerns at the recent G7 meeting, partly attributable to the trade war, hit home for the US and China? Could the recent pork shortages in China that are pushing up prices during their holiday period, have been a catalyst for China to make the first move? Could Trump’s upcoming 2020 election campaign and him using the economy and record stock market levels as motivating factors be why he is showing openness to compromise?
Last week Wednesday, the Chinese ministry stated that further rounds of exemptions will be announced in due course of which Friday’s was the first. We will have to see how long this “peace” lasts between the US and China