Wall Street builds immunity to trade war rhetoric

Fears of tariffs and a potential global trade war have jostled US stocks over the past few months on Wall Street. (AFP Photo / Stan Honda / AFP)
Updated 17 June 2018

Wall Street builds immunity to trade war rhetoric

  • US President Donald Trump announced hefty tariffs on $50 billion of Chinese imports on Friday
  • he benchmark S&P 500 index ended down only 0.1 percent on Friday

NEW YORK: Fears of tariffs and a potential global trade war have jostled US stocks over the past few months, but there is a sense among investors that the market is taking the drum beat of rhetoric and statements more in stride.
In the latest salvo, US President Donald Trump announced hefty tariffs on $50 billion of Chinese imports on Friday, and Beijing threatened to respond in kind.
But even as the developments threatened to ignite a trade war between the world’s two largest economies, the equity market largely shrugged it off. The benchmark S&P 500 index ended down only 0.1 percent on Friday.
That paled compared to losses earlier in the year that were sparked by fears of a US-China trade war that would be detrimental to economic growth.
“The market has gotten reasonably comfortably numb to this tariff stuff,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. “They are becoming more accustomed to this being a first foray and negotiating tool.”
The US Customs and Border Protection is to begin collecting tariffs on an initial tranche of 818 Chinese product categories on July 6.
“It’s kind of the cry-wolf syndrome,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “I think people fear the tariffs and the uncertainty about it, but think, ‘OK, this is just another negotiating point.’“
On March 1, the S&P 500 declined 1.3 percent when Trump announced plans for hefty tariffs on steel and aluminum imports to protect US producers.
Later in March, the S&P 500 tumbled 2.1 percent on another day of apparent escalating US-China tensions.
So far, Trump has taken little action beyond tariffs of 25 percent on steel and 10 percent on aluminum on imports from China, the European Union and other countries.
The market has grown more used to Trump’s style, especially when it comes to international affairs, investors said.
“The market is starting to get accustomed to the president, the way the president negotiates, the way the president tries to prove his point,” Carlson said. “There is a growing awareness of how the president tries to do business.”
To be sure, certain areas of the market remain sensitive to rhetoric about trade.
The S&P 500 industrial sector, which includes multi-national companies such as plane maker Boeing and heavy machine manufacturer Caterpillar, has lagged the market since trade war concerns flared in March. Industrials dropped 0.25 percent on Friday, worse than the broader index’s decline.
Steel shares also have been jostled, as investors weigh benefits from protective measures against fears a trade war will undermine global demand.
Auto investors have also been whipsawed by trade policy. Potential higher steel costs stemming from tariffs could hurt car makers, while the Trump administration has launched a national security investigation into car and truck imports that could lead to new US tariffs.
“The prospects of a trade war are fairly significant,” Tuz said. “It’s just an uncertainty that investors haven’t had to deal with for a long time.”


Deal on oil cuts ‘close’ as Saudi Arabia enlists G20

Updated 07 April 2020

Deal on oil cuts ‘close’ as Saudi Arabia enlists G20

  • ‘Virtual’ energy summit on Friday in new effort to stabilize market

DUBAI: Saudi Arabia plans to use its presidency of the powerful G20 group of nations in efforts to restore balance to global oil markets.

The Kingdom is organizing a special meeting of G20 energy ministers — including the other two biggest producers, the US and Russia — to discuss cuts to output.

The “virtual” summit is scheduled for Friday, the day after an OPEC+ meeting of oil producers. Crucially, the US, which is not an OPEC member, will be involved in the G20 summit, energy secretary Dan Brouillette said.

The initiative emerged after a weekend phone call between Prince Abdul Aziz bin Salman, the Saudi energy minister, and Fatih Birol, executive director of the International Energy Agency. The involvement of the G20 is part of the group’s remit, Birol told Arab News on Monday.

“The job description of the G20 is to provide and maintain financial stability, so it is in line with their aims,” he said.

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“The oil industry is going through one of the worst times in its history, and this could have major implications for the global economy, financial markets and employment. Saudi Arabia has been a stabilizing factor in the markets for many years.”

Saudi Arabia and Russia were “very, very close” to a deal to cut oil output, said Kirill Dmitriev, chief executive of the Russian Direct Investment Fund and a close confidant of President Vladimir Putin. An agreement would “bring so much important stability to the market,” he said.

Nevertheless, significant challenges remain. So far, talks between OPEC+ members have focused on a cut of about 10 million barrels per day. This would not be enough to outweigh global market oversupply estimated at more than 20 million barrels, amid a demand slump caused by the coronavirus pandemic.

There are also concerns about whether US producers would be permitted to take part in cuts. American antitrust law prohibits cartel practices, which would rule out a concerted move by its many oil companies.

Some energy experts have suggested that action by the Railroad Commission of Texas, which regulates the energy business in the biggest US oil state, could help limit overall US output.

On the markets, amid the continuing uncertainty, Brent crude was trading about 5 percent down, at just over $32.