Just when you thought we were heading safely towards at least a partial trade deal, tensions flared again this week on two new fronts.
First Donald Trump said he would be restoring tariffs on metals from Argentina and Brazil as punishment for the two countries’ currency policies. Then later yesterday, the US President took on France, threatening 100% tariffs on up to $2.4bn of French goods, including champagne. This move is in response to France’s digital services tax, which is aimed at US companies such as Google, Amazon and Facebook.
As if that were not enough the US trade representative’s office said it was looking at a wider range of tariffs on EU products in retaliation to European subsidies to Airbus, which have already been
deemed illegal by the World Trade Organisation.
With a resolution of the simmering trade war between the US and China a key plank of the market rally since the summer, the latest salvos are bad news for investors as we approach the traditionally strong year end Santa rally period.
The US is in focus on other fronts too this week. With the Federal Reserve due to make its final rate-setting announcement of the year on the 11th December, attention will focus on this week’s economic data. Non-farm payrolls on Friday will provide some guidance on where the Fed is heading with interest rates, coming as they do after a disappointing set of ISM manufacturing figures yesterday.
Despite this, the consensus is that rates will remain on hold after the back to back cuts between July and September and following Fed chair Jerome Powell’s optimistic assessment in a speech last week when he said that economic conditions were ‘generally good’ and pointing to ‘plenty of room’ for the current expansion to continue.
That suggests a wait and see attitude for the next few months which will most likely be supported by another strong month of job creation in November. The return from strike of 45,000 General Motors workers - ending the longest auto industry strike in 50 years - should push the number of jobs added to closer to 200,000 than the 128,000 reported in October.
While the US economy looks to be in reasonable shape, the state of relations between Washington and Beijing is certainly not good right now. This week the Chinese suspended proposed visits to Hong Kong by US military ships and aircraft in retaliation to the White House’s ratification of a new US law mandating annual reviews of the city’s political situation.
That apparent interference in China’s internal affairs has riled Beijing, making a rapid resolution of the trade war less likely than hoped.
The situation in Hong Kong remains difficult with a peaceful march over the weekend descending into chaos as shops were vandalised and police responded with force. Hong Kong’s economy fell into recession for the first time since the financial crisis in the third quarter. The City’s economy is expected to shrink by nearly 6% next year and its traditional government surpluses are under threat as corporate tax revenues dwindle. Retail sales have slumped by 24% thanks to the protests.
Elsewhere, the middle east is in focus thanks to OPEC’s latest meeting in Vienna this week. Oil producers from the producers’ cartel meet on Thursday with ministers from Russia and other oil exporters joining on Friday.
Top of the agenda this week is whether or not to extend cuts to production which have helped keep the cost of Brent crude above $60 a barrel despite excess production from rival producers such as US Shale. The existing deal which mandated cuts of 1.2 million barrels a day expires at the end of March and it is expected to be pushed out in to the middle of next year or beyond.
The price of oil is particularly important to OPEC’s de facto leader Saudi Arabia at the moment as this week also marks the pricing of the IPO of Saudi Aramco, the world’s biggest oil company and probably soon the world’s biggest company full stop. Although the valuation of Aramco is likely to be well down on the $2trn that the kingdom was hoping to achieve, it should be safely ahead of Apple, currently the world’s largest quoted company.
Apple’s valuation - about $1.2trn - is in the spotlight this week as it has emerged that the company is now worth more than the whole of the US quoted energy sector. While the iPhone maker has risen by 70% this year alone as the company defied sceptics worried about slowing smartphone sales, the energy sector has fallen out of favour as investors worry about over-supply, trade tensions and slowing global growth.
The sector is also under pressure as investors start to turn against climate-unfriendly industries and direct their investments towards more sustainable businesses. The energy sector also suffers from an overhang of debt, unlike tech stocks like Apple which sit on huge cash piles.
The climate issue is also front and centre this week as COP25, the first big climate meeting since the US said it would leave the Paris accord, gets underway in Madrid.
Delegates from about 200 countries will gather in the Spanish capital at a meeting designed to push signatories into bolder climate goals in 2020. Although many countries have adopted targets for net zero emissions by 2050, fewer have been clear about how they plan to get there.
Back at home, the main focus, of course, will be next week’s general election. The campaign was once again interrupted by a shocking terrorist incident on Friday when a twin stabbing in the City of London provided an unwelcome reminder of the London Bridge attacks just before the last election in 2017.
The impact of Friday’s events on the election is uncertain, although both of the main parties have been accused of attempting to politicise the issue with accusations traded on early-release legislation that may or may not have influenced the authorities’ ability to prevent the attack.
Whatever the cause, the latest poll of polls from the FT this week pointed to a narrowing of the lead held throughout the campaign by the Conservatives. The Tories are now just 10 percentage points ahead of Labour with the expected shares of the national votes now put at 43% and 33% respectively. The Lib Dems, which has seen support ebb away through the campaign, are now well behind on just 13%.
How the likely national vote share translates into seats in the UK’s first past the post voting system is hard to predict but it is generally thought that a lead of 6% or so is the dividing line between a Conservative majority and a hung parliament.
With one eye on his precarious lead over Jeremy Corbyn, the Prime Minister Boris Johnson will most likely play it safe at this week’s 70th anniversary celebration of the Nato alliance that he is hosting
near London. Although representatives of all 29 Nato countries will gather at a hotel near Watford, the PM is thought to be avoiding a meeting with Donald Trump and hoping that the US President will keep his views on the election to himself.
When President Obama spoke in support of the Remain camp during the run up to the 2016 EU referendum, his intervention was widely seen to be counter-productive. The British don’t like to be told which way to vote by anyone, least of all an American president.