Neither the SP500 nor the USOil markets are giving any signs of future direction from here (apart from not collapsing!) as the US-China trade war continues and we wait for China’s response to the latest substantial US increase in tariffs.
It was interesting to note some variations in interpretation from the US:
Mr Trump said that, “We will be taking in tens of billions of dollars in tariffs from China. Buyers of product can make it themselves in the USA (ideal), or buy it from non-tariffed countries.”
But Mr Trump’s top economic adviser, Larry Kudlow, said when asked whether it was correct to say that it was US businesses and US consumers who pay for the tariff: “Yes, to some extent. I don’t disagree with that.” “Both sides will suffer on this.”
The higher tariffs are paid by American companies importing goods from China. Economists have said a 25% tariff will be much harder for businesses to absorb than 10%, which means they are more likely to pass on some of the cost to consumers. Alternatively, they will seek other, non-tariff suppliers if and where similar goods are available with the right quality, charactistics and available volumes.
Further hints were made concerning a possible meeting between Mr Trump and China’s President Xi Jinping at the G20 summit in Japan in late June – before that is a long period of indecision for our markets!
Maybe of even greater concern right now is the situation with Iran. It is clear the additional tightening of US sanctions, including a virtually total restriction on oil exports from Iran, is starting to bite hard into to an already weak Iranian economy.The Iranian government is being pushed up against the wall and looking for a suitable response to this. Without ongoing negotiations this is a dangerous and volatile situation.
Brexit and the EU elections are also providing a similar degree of uncertainty in the GBP and EUR markets.
Not much to go on for a Monday outlook!