EUR 20.34 For Business Accounts Only

The Weekly Track rumpus

- The Weekly Track – Rumpus by Bob Savage
http://trackresearch.com/articles/the-weekly-track-rumpus/

When elephants fight, it’s the grass that suffers – African proverb

When powerful nations are conflicted, the weak ones suffer the most, so it goes for the market reactions to the US and China rumpus over trade. The rest of the world is looking less sure and less happy over the fight. There are unintended consequences to this US/China squabble as trade reflects the integration of global businesses into a complex supply chain. German carmakers are an example of losing out as they export from the US to China. The two biggest losers are Canada and Mexico thanks to NAFTA. Korea, Taiwan and Switzerland also show up on the list as vulnerable to being the grass to the US and China elephants. There are some nations that may benefit – like South Africa. Economists have been arguing against trade wars since the 1930s. The fear of a further rise in protectionism is a clear downside risk to global growth and an upside risk for inflation. We maybe forcing the FOMC to respond to US loose fiscal policy, tighter labor markets with rate hikes that also
reflect a splintering of the global trade rules set after World War II. This rumpus isn’t a child’s game even though it appears to have a tit-for-tat quality to it. Beyond trade fears remain real economic doubts as the push for growth to drive up inflation hasn’t been convincing in places where demographics, technology and excess capacity hold (Japan, Europe, and some Asian Emerging Markets like Korea). The other geopolitical stories have taken a backseat to the headlines but perhaps will show up in markets again with Hungary voting today expected to re-elect nationalist Orban as PM –highlighting the ongoing splintering of EU politics; with Syria continuing with gas attacks – highlighting the inability of the world to control war crimes or bring peace with a corrupt leader; with Hamas continuing with protests in Gaza; with Germany suffering another terror act as a van plows into a crowd in Munster. Perhaps the most important story from last week and for the wee
k ahead is in the fear for markets – it’s reflected in US stocks, not in bonds or FX. The lack of FX reaction to the ongoing political noise is notable but understandable in the context of 2016-2017 when central bankers successfully counteracted political events like Brexit or even the election of Trump. Whether that continues maybe the key to understanding risk events for the rest of April and for 2Q.