Have a bit more uncertainty

Posted by: Paul Donovan

11 Jun 2019
  • US President Trump suggested the threat of trade taxes against goods that have spent any time in Mexico may be revisited in ninety days. This is unlikely to affect markets in the near term (the closer we get to the US presidential election, the less credible threats of tax hikes become). It does reinforce the idea of a risk premium for investing in supply chains involving the US.
  • US President Trump also suggested that there would be more trade taxes if Chinese President Xi failed to meet with Trump at the G20. The Trump Twitter Feed has become more aggressive in suggesting tax increases after the end of June.
  • UK production data yesterday showed the collapse of car production. Car plants shut down in anticipation of an EU-UK divorce that never happened. This may account for some German production and export data weakness (because supply chains will have been affected). One way of seeing whether this is a temporary effect is to look at the employment data today. 
  • US producer prices, as an indication of corporate pricing power, are due. With political criticism of the Fed, trade taxes and rising labor costs, the pricing power of companies is more market relevant.