Fear of a U.S.-Sino Trade War and Fear of a U.S.-Iran Real War Send Shivers to Investors

May 13, 2019

U.S. President Trump was particularly provocative over the weekend even by his own standards. Trade talks stalled with China, and he’s threatening a further escalation if China retaliates against the higher U.S. tariffs imposed last Friday. Tighter U.S. economic sanctions against Iran and a reinforced show of military force in the middle east threaten to force Tehran’s hand and start another war in the region. On the home front, Trump has doubled down against his congressional opponents and is exploring counter-suits against them.

U.S. stock futures are down very sharply. In overnight trading, equities lost 1.4% in South Korea and Taiwan, 1.2% in China, Indonesia, and Singapore, 0.7% in Japan, and 1.0% in India. Hong Kong markets were shut, observing Buddha’s birthday. European share prices have fallen 0.8% in Germany and Switzerland, 0.6% in Italy and France, 0.2% in Spain and 0.1% in the U.K..

A predictable early effect of the escalating U.S.-China trade war has been a drop of the yuan of 0.8% to a 4-month low. The dollar, by comparison, did not change much against the euro, yen, sterling, Swiss franc or loonie. The greenback rose 0.6% versus the peso and 0.4% and 0.3% relative to the Australian and New Zealand dollars. Gold edged slightly lower.

The 10-year Treasury yield dropped four basis points in futures trading to a 6-1/2 week low. The 10-year German bund and British gilt yields slid a basis point, while their Japanese counterpart remained pinned at minus 0.06%.

The threatened siege of Iran lifted the price of West Texas Intermediate crude oil by 1.3%.

Like many Monday’s it’s been a light day from a data release perspective.

Japanese reserves climbed further in April, extending their advance since the end of 2018 to $22.5 billion. Japan’s Ministry of Finance reassigned a trend designation on the index of coincident economic indicators to “weakening,” which was the label over the final third of 2018. In between, officials in January-February of this year had offered some words of hope that the data was “signaling a possible turning point,” but that wasn’t to be. The index of Japanese leading economic indicators meanwhile fell 0.8 points in March to the lowest reading since mid-2016.

Australian home loans, which had rebounded 0.5% in February after a 1.3% drop in January, fell by a considerably larger-than-forecast 2.8% in March.

The Bank of France reported monthly business sentiment indices. Manufacturing, services, and construction each dropped a point a 3-month low.

Norwegian real GDP unexpectedly contracted 0.1% last quarter, the first quarter-to-quarter decline since the summer of 2016. GDP was 2.5% higher than a year earlier.

New Zealand food prices dipped 0.1% on month in April, depressing the 12-month rate of increase to a 3-month low of 1.0%.

Ireland’s construction purchasing managers index climbed to a 2-month high of 56.6 in April from a reading of 55.9 the month before.

In the twelve months through April, consumer prices rose 0.8% in Portugal, matching March’s 6-month low. Czech inflation eased back to a 2-month low of 2.8%, but Romanian CPI inflation edged up 0.1 percentage point to a 6-month high of 4.1%.

Turkey’s first-quarter current account deficit of $1.94 billion was sharply below its year-earlier imbalance of $16.23 billion.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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