- Tariff headlines versus implementation. While trade headlines have garnered a lot of attention, and roiled markets in some instances, it’s important to reiterate that neither side wants a trade war. The tit-for-tat we’ve seen over the past few months may be more aptly viewed as the U.S. and China feeling each other out to better understand the other’s pain points as they (hopefully) progress towards a more mutually beneficial relationship as major trading partners. Looking back at some of the recent back-and-forth may help put the most recent $200 billion announcement into perspective. But first it’s important to remember that there’s typically ~60 days from the announcement to imposition of the tariffs, intentionally leaving time for reaction, negotiation, and adjustment. In March, it started with import taxes on steel and aluminum, with no stated target value, before targeting sanctions on one of China’s largest telecom firms on national security grounds; then Treasury Secretary Mnuchin announced the “trade war” was on hold late last month as negotiations continued and China agreed to buy “significantly more” from the U.S. Importantly, these jabs are not intended to be knock-out punches, and though the dollar value of the latest announcement is higher than previous iterations, it’s still small relative to the size of the economies in question.
- Global central banks back in focus. After global central bankapalooza last week, discussed in our latest Bond Market Perspectives publication, today Jay Powell, Mario Draghi and Haruhiko Kuroda are taking part in an ECB-sponsored policy panel in Portugal. The themes are prices and wage-setting but investors will be watching for any hints on Powell’s commitment to four Federal Reserve rate hikes this year, insight into the flexibility of Draghi’s plan to wind down stimulus (the so-called “dovish taper”), and Kuroda’s views on whether Japan can sustain higher inflation. Given the impact of tariffs on prices, global trade tensions will surely come up.
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