Burnt toast

Posted by: Paul Donovan

08 Nov 2019
  • Both the US and China have said that if a "phase one" trade agreement happens it would include some reduction in tariffs. It is not clear if the tax rate would be cut, or the number of goods being taxed would be cut. One of the many EU presidents, Juncker, claims to be "fully informed" that US-EU auto tariffs will not take place.
  • The length of US-China negotiations does hint at a more substantive deal. Economically, trust in the world trade order has been damaged. Even with a deal the economy is unlikely to go back to where we were. You cannot turn burnt toast back into bread. This toast has been quite badly burned.
  • Chinese trade data showed less weakness (yoy) in imports and exports than expected. German trade data had more strength in imports and exports than expected. There are tentative signs of global trade stabilizing in volume terms. This does not mean the costs of trade taxes disappear. It does remind us companies can adapt.
  • Spanish elections will be held on Sunday. Markets are not expecting a decisive outcome. Former Mayor Bloomberg may be considering running for president – it is too early for markets to care about this.