22 Jun 2018
Escalating trade wars spooks investors
Markets
- The Aussie equity market finished higher this week as local investors didn’t get the trade wars memo.
- All other global equity markets fell on escalating trade wars between the US and China.
- The Chinese share market fell to a 20 month low as investors worried about the economic damage from the trade tensions with the US.
- In local stock news, Telstra updated the market with a bang revising earnings guidance lower on falling revenues as they cut margins to maintain market share. Competition hurting. The company reaffirmed this year’s dividend, but provided no guidance beyond that. The company also announced an additional $1bn of cost savings and a significant business restructure which will result in the loss of 8,000 full time jobs.
- BHP has announced approval of $3.8bn spend on a new iron ore mine in WA’s Pilbara region. The announcement comes after rivals Fortescue their new iron ore mine whilst Rio will update investors shortly on its new iron ore project.
- Ramsay Health Care’s share price fell after the company downgraded its full year earnings guidance due to weaker growth in patient numbers and medical procedures. People electing to go public for maternity and other procedures will only put further strain on the public hospital system.
- The Aussie dollar fell this week following some dovish comments from the RBA governor whilst overseas and increasing concerns regarding escalating trade wars.
Economics
- Sydney house prices showed their first annual decline since 2012 in the March quarter, in which the value of detached dwellings fell 0.8% on the same time last year. The median house price dropped back to $905,000, from $1,031,500 in December.
- US industrial production dipped in May, coming in below expectations which were for a rise. The decline was driven by the largest monthly decline in manufacturing since January 2014.
- US consumer sentiment rose in June, as consumers grew more optimistic about current conditions, with wage gains and inflation assisting. However, consumers grew more pessimistic about the future.
- A key US homebuilder index fell in June, coming in well below economists’ forecasts for a jump in the reading. Present sales conditions came in at an 8 month low whilst a gauge of future sales conditions fell to the lowest reading since November. Demand remains strong but input costs are rising strongly.
- The British Chamber of Commerce cut its UK growth forecast to 1.3%, which would represent the weakest growth since 2009.
- Data showed Japan’s exports rose in May at the fastest pace in 4 months thanks to increased shipments of car, car parts, and semiconductor equipment. Helps when you don’t have tariffs being levied on you.
Politics
- US President Trump unveiled an initial list ($50bn) of strategically important Chinese goods that would be subject to a 25% tariff effectively 6 July, a move China labelled “a threat to China’s economic interest and security”. China then issued its own list of US imports subject to tariffs (545 products), targeting soybeans, aircraft, autos, and chemicals, all a large part of Trump’s voter base.
- President Trump then asked his trade representative to identify a further US$200bn of Chinese products that could be subject to tariffs of 10%. China indicated they would be forced to retaliate yet again, whilst Russia has also joined the tariff retaliation party.
- A rift in the German government has put pressure on Chancellor Merkel’s 12 year tenure as Germany’s leader, with one of the party’s in Merkel’s coalition setting a 2 week deadline to get a European deal facilitating the return of migrants to European countries in which they were first registered.
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