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The media headline war

| Posted by: Paul Donovan | Tags: Paul Donovan

The media are aggressively competing to find the most sensationalist headlines to describe the trade dispute between the US and China. As soon as you think the limits of hyperbole have been reached, another headline comes out to escalate the situation.

The trade dispute itself cannot really be called a "trade war". A trade war implies falling trade volumes. US President Trump's economic policies are calculated to increase the size of the US current account deficit, and so increase trade volumes. (US living standards will also increase if the deficit increases, coincidentally).

Equity volatility continues to remind investors that the recent lower volatility experience was not normal. Drops in equity markets have a limited wealth effect, as ownership of equity is not that widespread. The rising cost of raising capital in equity markets can hardly be an economic problem, when cheap capital is readily available from other sources.

Eurozone producer price inflation is due, indicating company pricing power. One interesting detail in the data is that it shows what happens to producer prices of exports sold outside the Eurozone. That will give hints as to how European companies handle trade taxes imposed on US consumers.