In the ongoing China-US trade war, President Donald Trump’s administration plans to unveil fresh tariffs on $200bn in Chinese products, as Beijing is debating new ways to retaliate. China’s stocks dropped to their lowest level in nearly four years on Monday, the slow burn exacerbated by investor concerns over trade tensions with the US. A weaker yuan also makes the nation’s shares less attractive. China’s currency has fallen almost 7% since March-end amid speculation the government was trying to counter the impact of US tariffs. In contrast the US is looking breezy, as tariff effects on the US economy are expected to be limited.
These latest tariffs come in the wake of high level US-China trade talks last weeks, suggesting that little ground was made. Good news came in the form of reports that the tariffs, which were considered inevitable, may only be at a rate of 10%; rather than the anticipated 25%. Though don’t expect a resolution in the trade dispute for a long, long time.
Turkey’s central bank is in a flap, after saying that its monetary stance would be “adjusted,” hinting that it will raise interest rates despite intense political opposition. Turkey’s annual inflation rate soared to 17.9% in August, far above the bank’s official target of 5%. Turkey’s economic turmoil is squeezing minimum wage earners, which account for more than 60% of its workforce.
Brexit dilemmas will be the top agenda at the EU’s Salzburg summit this week. EU leaders will hold their first serious discussions on Brexit since March. EU negotiators are searching for a solution to avoid a sea border between Northern Ireland and mainland Britain. According to EU diplomats, British negotiators have hinted they would be ready to make concessions once May has navigated a crucial speech at the Conservative Party annual conference in October. Don’t expect any ground-breaking negotiations, a Brexit ‘fudge,’ a vague declaration of future ties, is still the most likely outcome.
Companies are feeling the Brexit pressure. Deutsche Bank has scaled up plans to shift more assets from London to Frankfurt. Unilever, the world’s biggest manufacturer of ice-cream, is proposing to move its headquarters from London to the Netherlands. Unilever will drop out of the FTSE 100 index if it relocates, forcing some investment funds to sell their shares.
New doubts are emerging about the potency of a US-led sanctions campaign aimed at crippling North Korea’s economy and forcing the country to end its atomic-weapons programs, as denuclearisation talks have slowed.
Argentina’s economy minister will present new budget measures this week as it tries to shore up support from the IMF and calm investors after a plunge in the peso, which has lost more than 50% of its value against the dollar this year. President Mauricio Macri last week announced an austerity plan and new taxes on exports, as he pledged to reduce the budget deficit. This comes after the central bank raised its main interest rate from 45% to 60%, now the world’s highest, in a bid to prop up the floundering currency.
Tesla’s investors absorbed news of the departure of both its chief accountant and human-resources director, following concern about the erratic behaviour of its chief executive Elon Musk, after he blazed up during a live interview. Tesla’s stock has fallen by almost 20% in the past month.
The European Parliament voted in favour of a proposal that could force Google, Facebook and other big internet firms to stop users uploading copyrighted content and to share revenue from that content with musicians and writers. The proposal is a long way from becoming law; EU member states still have to be consulted. Already smaller EU states have expressed strong resistance to the idea, which they say will chase US tech giants from their shores, especially Ireland that serves as a low-tax hub for Apple, Facebook and Google.
Italy is jangling investors nerves, with worries that its forthcoming budget will breach EU rules that set deficit ceilings at 3% of GDP. In response, the spread on Italy’s ten-year government bond yield over its German equivalent hit a level last seen during the euro crisis. High yields are reflecting the uncertainty in the country’s politics, indicating that the value of Italian government bonds are sliding.
Twitter’s chief executive Jack Dorsey, and Facebook’s chief operating officer Sheryl Sandberg, faced a grilling on Capitol Hill. Both reiterated that they have taken significant steps to curb fake news and thwart foreign groups trying to interfere in elections. But Jeff Sessions, America’s attorney-general, said he was considering investigating big tech companies over antitrust issues and an alleged bias against conservative views on their platforms. In typical elusive style, the pair avoided committing to anything specific, following the now established routine of kicking the hardest questions down the road. The harshest criticism was aimed at Google’s executive leadership who was invited to give testimony, but failed to show.
US-Canada trade talks are poised to come to a head this week. High-level negotiations resume this week, after Trump’s threats to cut his largest export market out of the deal. Congress is pressing for Canada to be kept in NAFTA, after the US and Mexico struck their own deal last month. The middle of the week, probably Thursday, is considered the next deadline to reach a handshake deal, before Mexico’s president-elect takes office.
Egypt joins the group of emerging market disasters. This week saw a sell-off in equities, after the President’s two sons and others were detained on accusations of stock market manipulations. The past few months have not been kind to a group emerging market economies, notably Turkey, South Africa and Brazil. A rising US dollar and US interest rates are putting pressure more broadly on EM markets that are exposed to US debt and have weak currencies. This is hurting even more due to various idiosyncratic economic and political issues. The tide is high and they’re holding on. Egypt’s high and rising external deficit may see it join the gang.
The US economy is still going strong. Tariff disputes with the rest of the world and China in particular are having no negative effect on consumer sentiment thus far. No signs of a material impact on import prices yet, bar a few individual sectors. And economy-wide no sign of broader inflationary pressures.