Risk Assets Decline as Tariff Uncertainty Builds

 

China Uncertainty Weighs on Markets

US equity markets traded lower on the day as investors continue to consider the impact of increased tariffs on Chinese imports (and in turn, increased tariffs on US imports to China).  The tech-heavy Nasdaq (-1.43%) posted its largest daily loss since July, while the S&P 500 (-0.56%) and DJIA (-0.35%) were able to marginally trim their losses.  In bond markets, US Treasurys held within a tight range throughout the day and were mostly able to weather the trade uncertainty.  Yields/swap rates finished 1-2bps lower for the trading session, with the 10-year note yield closing near 2.99% after briefly crossing the 3.00% psychologically significant level earlier this morning.  The impact of the trade war concerns were felt in the currency markets, as the US dollar declined 0.44% against major currencies, led by a 0.5% drop against the euro.

 

 

Kudlow on the US Economy

In a day that lacked significant economic data releases, financial markets turned their focus to a speech at the Economic Club of New York by the director of the National Economic Council, Larry Kudlow.  His words were extremely bullish on the US economy, stating that “the US is the hottest economy in the world today. We’re crushing it, capital is flowing here in huge quantities”.  Commenting on the controversial trade situation with China, Kudlow deflected the blame away from President Trump – “I say, do not blame Trump for this. He inherited this trading mess. He’s trying to fix it. He is a reformer. It is not an easy task.”  Kudlow also stressed the importance of reduced taxes and regulations, noting the potential that there is “no limit to the number of jobs that we can create.”

 

 

Trade Update

The ongoing trade discussions with China and Canada stand to be the most scrutinized subjects of the week.  President Trump again today stated his willingness to impose tariffs on an additional $200 billion in Chinese imports, ranging from food to furniture.  This would increase the total amount of imports being tariffed to $250 billion, representing roughly half of all imports from China.  In trade negotiations with Canada, another self-imposed deadline has been set for this Thursday to rewrite NAFTA, inclusive of the US, Mexico AND Canada.  Helping to bolster hopes of a tri-party deal getting done, Congress has already presented its preference to include our neighbor to the north.  Many of the prior demands by the US have been amended to make it more attractive for all parties involved, however Trump remains firm on his trade positioning stance as evidenced in his tweet earlier today –  “If countries will not make fair deals with us, they will be ‘Tariffed!”