“Trade War” or “Business as Usual”?
The difference between FEARS and FACTS
Eurostoxx 50 at 3300 – a buying opportunity? In recent years, 3300 acted often as a strong support or resistance level. In addition, it represents a 38.2% Fibonacci retracement to the rally from the 2016 low to the 2017 peak. No guarantee it holds, but we think there is a good chance it does because trade-war fears seem exaggerated to us.
- Early February, markets crashed on FEARS that inflation would pick up, after wage inflation came out a bit higher than expected. FACT is that at the end of March, the FED still can’t be worried as it forecasts inflation between 1.9% and 2.1% from 2018 through 2020 … despite its improved outlook on growth and employment.
- In recent days, it was FEARS of an escalating trade war which sparked another sharp sell-off. Interestingly, markets knew about President Trump’s intention to raise tariffs on imports worth 60bn USD early March already, but they got only excited at the end of the month. To put those 60bn USD in the right perspective: They represents “only” 12% of the goods worth 505bn USD sent from China to the U.S. in 2017. China’s “retaliation” measures of duties on only 2.2% of its imports from the U.S. is merely a minimum reaction proving that China has no interest in an escalation.
- This is not a trade war – this is business as usual, with the difference that it’s “tweeted” more loudly than usual! Did anyone bother when the “ EU set duties of up to 35.9% on imports of hot-rolled flat steel from China” (Reuters, June 9, 2017) or when the “EU imposed import duties of up to 73.7% on cheap Chinese steel” (the Guardian, October 7, 2016). Nothing new under the sun though, just more noise around it.
- We actually find it rather positive that many countries are (still) exempt from new tariffs, for example Europe which taxes US cars by 10%, whereas the U.S. only imposes 2.5% (CNBC, March 5, 2018)? And we wouldn’t be surprised if – after the US Trade Representative’s office has presented a list of products, followed by a 60-day consultation period before definite action can be put into force (say by the end of June!) – the final figure would be much less than 60bn USD. Well possible though that the last sell-off will be remembered as yet another buying opportunity and that FACTS will prove that FEARS were unfounded.