More tensions

Posted by: Paul Donovan

02 Jun 2020

Daily update

  • US equity futures have weakened a little as unrest has continued in several US cities. US President Trump has talked of deploying the military. The strength of the economic bounce-back is dependent on keeping fear as low as possible. Fear is likely to remain high across the political spectrum while this unrest continues.
  • US-China relations have not been getting media attention, with the situation in the US. However, there are reports (including from Bloomberg) that Chinese officials have told companies to scale back purchases of US agricultural products. This was a key part of the phase one trade deal, and so may be a longer-term concern.
  • The interminably tedious EU-UK divorce sees a final round of talks starting today. The UK is unlikely to extend the exit deadline. The talks are unlikely to go anywhere. Instead, in the grand tradition of the EU, we expect an eleventh-hour heads of government summit later this month, which will overrun and then produce a compromise in the early hours of the morning.
  • Apple, which makes telephones, announced price reductions in China to maintain sales momentum. This is just one data point, but it is consistent with the overall impact of the virus being disinflationary rather than inflationary in the near term.

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