U.S.
President Trump moved forward with imposing 10% tariffs on $200 billion of
Chinese imports effective next week. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html
Trump’s move has obviously taken the trade war with China to a new level, and
the confrontation may last longer than what was previously thought.
There’s
no doubt that China’s economy will begin feeling the pain given that the U.S.
duties now cover almost half of its imports. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html
So, expect to start seeing more aggressive monetary and fiscal actions to
reduce the ongoing impact of the trade war. However, it remains unclear to what
extent the U.S. economy will be hurt with these tariffs, but definitely
corporate and consumer bills will be on the rise in the coming months.
Interestingly
the impact on financial markets was muted after the announcement. While China’s
major indices were slightly lower, stocks in Korea and Japan traded in green
territory. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html
It seems as if the latest tariff announcement was largely priced in, but what
remains uncertain is how Beijing policymakers will respond.
While
China cannot match the U.S. tariffs dollar for dollar given the huge trade
imbalance, it still has other weapons it could use, including boycotting U.S.
products, increasing taxes on earnings of U.S. companies in China, refusing to
grant approvals for M&A involving U.S. businesses, and reduce its U.S. debt
holdings. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html
Chinese officials have also threatened to walk away from the negotiating table,
as they seem to be betting on Republicans losing the midterm elections in
November. Investors should be prepared for more short-term downside risks
across equity markets given all these uncertainties.
There
are also little movements in FX markets as traders remained on the sidelines.
The dollar index was treading water after dropping 0.45% on Monday. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html
However, expect the greenback to resume its uptrend if risk aversion dominates
again.
Sterling
was the best performing currency on Monday, rising to a six-week high against
the dollar to trade above 1.3150. http://www.tectono-business.com/2016/02/contemporary-step-by-step-guide-to.html
Despite no significant progress occurring in Brexit talks, it seems traders are
optimistic that a deal will be struck in the coming days. If EU leaders
continue to adopt a flexible approach during their talks this week, expect the
pound to continue outperforming. However, risks remain within UK politics and
that could lead to big swings in the coming weeks.
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