Macro views

Pyrford Perspectives: tariff tensions and rate reductions

Tariff tensions increased in August, while President Donald Trump lambasted the Federal Reserve with some extraordinary comments.
September 2019

Risk warnings

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

The trade war between the US and China is an ever-evolving tale. In the latest chapter, US-imposed China tariffs are set to increase to 30% (from 25%) on approximately $250 billion of goods from 1 October, while tariffs on $300 billion of goods have been taxed at 15% (up from 10%) in two tranches – the first was on 1 September, with the second coming on 15 December…or not.

To say the situation is fluid is an understatement – every time Trump comments on the matter, the goalposts seem to shift. China has retaliated, although those details also remain ‘fluid’, and Trump has bounced back by “demanding” that US businesses move operations out of China. You couldn’t make this stuff up.

Tariffs, as we have repeatedly remarked, are very bad business. They hinder economic growth everywhere. Many US businesses are already feeling the pinch from higher import prices and curtailed supply chains, while the great Chinese export machine is stuttering. The slowdown in China is directly hitting other front-line exporters such as Germany and Japan.

Risk warnings

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

 

Mr Trump, never one to waste a day without some extraordinary tweets, said: “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi.” To the uninitiated, Mr Powell is Chairman of the US Federal Reserve, whilst Chairman Xi is, of course, China’s supremo. President Trump believes the Fed should have reduced interest rates by at least a full percentage point at the end of July when it opted for “only” 25 basis points. We emphatically disagree – particularly since the Fed has stopped the gradual shrinkage of its enormously bloated balance sheet. Quantitative easing is once again a reality, with quantitative tightening well and truly buried.

Central banks in other countries that have also recently reduced their key interest rate include: New Zealand, Australia, Russia, Chile, South Korea, Brazil, South Africa, Mexico, Saudi Arabia, India and Turkey. It is expected that the European Central Bank will cut its deposit rate this month – probably to a negative 0.5%. Robust world in which we are living, isn’t it!

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Subscribe to our insights
Related articles
No posts matching your criteria
July 2020

The U.S.-China relationship in a changing global economy

An inevitable blame game between the U.S. and China has followed COVID-19, but the crisis has really just extended the “trust deficit” that has been steadily building between the two countries in recent years.

June 2020

Thematic investing and the Post-COVID world

In the third in our series of virtual mini-forums, we discussed thematic investing post-COVID in one session and the outlook for oil in another.

June 2020
6 min read

Recovery by 2022? It's fiscally possible

In this session, the debate focused on why the global economy may pull out of COVID-driven recession more quickly than consensus believes.

May 2020
6 min read

U.S. policy: Pandemic puts the heat on China while tech regulation simmers

We focus on four areas of U.S. policy crucial to our near-term economic outlook: fiscal stimulus, U.S.-China relations, regulation of technology companies and the 2020 U.S. elections.

3 min read

Market update – 24 March 2020

Paul Niven – of our Multi-Asset team – offers an update on market events.

2 min read

Paul Niven - Market Update – Coronavirus

Paul Niven gives an update on coronavirus and its effect on equity markets.

VIEW MORE