Investment Insights: Trump’s trade truce timing

Wade Balliet
Posted by Wade Balliet
Investment Strategy

This weekly report presents insights from our Global Investment Management team.

Small stream of identical, new white cars driving off a large blue cargo ship at port.The U.S. and China took another step forward on trade Monday night as officials from both countries discussed next steps and a timetable for implementing the rumored trade truce reached by President Trump and Chinese President Xi Jinping during the G20 summit in Argentina earlier this month.

While details of any deal have yet to be released, the trade war may be deescalating. As a meaningful step toward cooperation, Chinese officials are now working on lowering tariffs on U.S.-made cars from 40% to 15% – a level similar to what other countries pay – after raising that same tax in July amid heightened trade tensions.

In spite of the ongoing trade clash, China’s trade surplus with the U.S. continues to grow and reached a record $35.6 billion in November, according to Chinese customs data. That figure remains troubling to the U.S. administration as their goal of equalizing trade moves farther and farther away even as both sides institute tariffs and trade restrictions. The combination of a growing trade deficit and Trump’s hardball 90-day deadline – whereby the U.S. administration will move forward with higher tariffs if no agreement is finalized before the end of February 2019 – will likely be strong motivators for collaboration on both sides, particularly as Xi has already committed to some concessions.

Uncertainty over Brexit remains one of the largest geopolitical news stories after the European Court of Justice ruled that the U.K. could cancel their withdrawal from the European Union without a vote from other member countries. The landmark decision adds an alternative to withdrawal as support for Brexit continues to wane under U.K. Prime Minister Theresa May. On Tuesday, May called off the essential vote on her proposed withdrawal deal, which was widely expected to be rejected by Parliament. While officials within the government debate how to proceed, the European Commission has declared that there will be no more negotiation. The vote on May’s proposal could be delayed until January, or even March – right before the Brexit deadline. However, she could be fighting a losing battle as opposing officials will submit a no-confidence vote today that, if passed, would oust May as prime minister.

The financial markets have fluctuated over the last few months as news develops in the U.S.-China trade dispute, the Federal Reserve comments on domestic interest rates, and geopolitical uncertainty stirs the U.K. and France. It has been a fickle year for U.S. stocks as they have swung between losses and gains, and may finish the year in the red. Still, domestic stocks may still end the year as the best (or one of the best) performing major asset classes as foreign stocks sink lower and bonds tread water. The 2018 year could be the first calendar year since 2008 with a negative return, and could mark the beginning of the end for one of the longest bull runs in history.

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Chart showing various market returns as of 12/11/18

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