Weekly Review: China feeling the wrath of Trump?

Ben Weiss, Monday, 5 August 2019

Donald Trump

Boxer or President? Trump continues to deliver blow after blow to China, who seem to be on the ropes as yet more tariffs were announced this week. It came after the Fed finally took the decision, for the first time in 11 years, to lower rates. Elsewhere, lowering fuel costs caused Shell to report a loss and Just Eat merger may be the key to the future domination of the takeaway industry.

Trump and Xi – A peculiar friendship

Trump and Xi’s friendship is like any other. They meet every so often, speak about their lives and occasionally even go to places together. The only difference is that both are in charge of the two largest economies in the world and have the power to cause economical Armageddon. But friends treat each other nicely. Sure, they may have digs at one another in a banter-like manner, but it’s nothing usually too serious.

So why on earth has Trump imposed a new 10% tariff on $300 billion worth of Chinese goods? That doesn’t sound too friendly and it certainly isn’t banter.

But Trump still seemed determined to cling onto/establish that a strong friendship did exist. The additional tariffs were initiated on Twitter via a string of tweets in which Trump directly referred to Xi as a ‘friend’ and said the future relationship between the US and China ‘will be bright.’ He slipped in the middle of those that the damaging new tariffs - that will likely cost China billions and send indices spiralling - will come into effect on 1 September.

So, the trade-war saga continues. It has looked to be simmering, and with talks still ongoing this latest revelation has not decimated relations. But it seems to be a strange move.

As for the markets, they’ve reacted. The Dow is down nearly 400 points at the time of writing, and the two other major US indices are also down. Meanwhile, the Nikkei, FTSE and DAX have also suffered considerable losses.

Going forward, the trade war will continue to have a huge impact on the markets and may even dictate more significant changes towards the end of the year if no resolution is met. As for the Trump-Xi friendship, it seems futile to keep up a charade of friendship – action speak louder than words.  

Fed rate cut not enough?

A short time before Trump imposed the new tariffs, the Fed announced it was reducing interest rates. This came as a shock to absolutely nobody, with many traders suggesting a 100% of a rate cut in July. It came to fruition, as the Fed decided to lower rates from 2.25% to 2% in an attempt to combat an expected slowdown in the economy.

The President has long since called for the Fed to act to help boost the US economy, but hopes were that the cut would be sharp and happen multiple times over the next few months. Based on what Jerome Powell (Chair of the Fed) said in the following press conference, this will not be the case.

It’s likely that the markets had already priced in the cut, with it being such a forgone conclusion prior to the FOMC meeting. However, the trade war tariff action has completely unsettled the markets. So, knowing how they would have reacted is now more difficult so determine.

Shell profits down

We’ve all been predicted to get an A in an exam and ended up with a C. Or estimated a car journey would take an hour and it ended up taking two. These misses of estimates are not too significant… unlike Shell’s. The fourth biggest oil company (revenue) in the world posted results that were weaker than expected, missing analyst estimates by an incomprehensible $1 billion.

The tough global environment was blamed for the miss, with gas markets suffering at the hands of the US-China trade war. Shell price fell approximately 4% in the aftermath.

Just Eat merger

And finally, from a Dutch oil company to a Dutch firm that is involved in an £8.3 billion merger with Just Eat. Its price soared over 20% as the news of the merger emerged. It will be interesting to see what the future holds for the now-giant company, as they look to dominate the European market.  

Just Eat

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