Tensions are high the day after the U.S. and China took their trade dispute to the next level, though Goldman Sachs CEO Lloyd Blankfein doesn’t seem too worried and the PBOC is seeking to reassure investors. Here are some of the things people in markets are talking about.
Trump Talks Trade War
The world’s two biggest economies threatened punishing tariffs in the opening shots of a trade war, as Beijing vowed to retaliate “forcefully” against U.S. President Donald Trump’s pledge to slap duties on another $200 billion in Chinese imports. In remarks in Washington on Tuesday, Trump signaled skepticism that talks with China will end the disagreement. “Maybe something happens, where they come and they say, ‘We agree, it’s been unfair for the last 25 years,’ ” he told the National Federation of Independent Business. Global stocks declined amid the turmoil.
Blankfein the Optimist
Goldman Sachs CEO Lloyd Blankfein doesn’t appear to be as worried about global trade tensions as many on Wall Street. The Trump administration’s tariff threats against China are a way “to remind your negotiating counterparty of how much firepower you have,” he said Tuesday in an interview at the Economic Club of New York. “I don’t think we’re in a suicide pact on this.”
We Got This, Says China’s Central Bank
The People’s Bank of China called for investors to remain calm and pledged to use monetary policy “comprehensively” after the trade standoff with the U.S. sent the nation’s benchmark stock index plunging. Governor Yi Gang said in an interview with the Shanghai Securities News, published on the central bank’s website late Tuesday, that policymakers are prepared for outside shocks. The Shanghai Composite Index slid 3.8 percent, falling below the 3,000 level previously breached in 2015 and 2016. “We’ll be forward-looking, prepare relevant policies, and comprehensively use all kinds of monetary policy tools,” Yi said. Stock market turbulence is “mostly driven by sentiment,” he said, adding that China has “room to face all sorts of trade friction.”
OPEC Members Gird for Battle
Iran rejected a potential compromise at OPEC, saying it won’t support even a small increase in oil production when the cartel meets on Friday. The comments by Bijan Namdar Zanganeh, the Iranian oil minister, are the strongest indication yet that the meeting of the Organization of Petroleum Exporting Countries could end in disarray for the first time since 2011. “I don’t believe in this meeting we can reach an agreement,” Zanganeh told reporters on his arrival in Vienna. OPEC makes its decision by unanimity, so the veto threat may force Saudi Arabia to assemble a coalition of countries willing to bypass Tehran. Trump has tweeted twice in the last two months to complain about high oil prices and accuse OPEC of being “at it again.”
BlackRock Bearish on the Aussie
Australia’s dollar is at risk of sliding to 70 U.S. cents this year as China’s economy slows and the Federal Reserve keeps raising U.S. interest rates, according to BlackRock Inc. The Aussie tumbled below 74 cents on Tuesday for the first time in a year amid the worsening trade dispute between the U.S. and China, Australia’s largest trading partner. The currency faces more pressure as monetary policy divergences see Australian bond yields drop further below those of U.S. Treasuries, said Craig Vardy, BlackRock’s head of fixed income for Australia. The Aussie dollar last traded at 70 U.S. cents in February 2016. “There are conditions that could get it there,” such as rate differentials and “the potential for China slowing,” Vardy said in an interview this week in Sydney. Slowing local lending growth may also add strain to the economy and currency, he said.
What we’ve been reading
This is what caught our eye over the last 24 hours.
- The first step in the inversion of the U.S. Treasury curve is at hand.
- The U.S. is withdrawing from the United Nations Human Rights Council.
- Caterpillar has become a trade-war casualty, even with record profits.
- Market correlations are at multi-year highs.
- Treasuries are off limits for now in trade spat.
- The distress of migrant children has Trump spinning.
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