Date: July 20, 2018
Trump Says He’s ‘Ready To Go’ With $500 Billion in Tariffs on All China Imports
President Donald Trump said he’s “ready to go” with tariffs on $500 billion of Chinese imports, saying the U.S. has been taken advantage of for too long. “I’m not doing this for politics. I’m doing this to do the right thing for our country,” Trump said in a CNBC interview aired Friday. “We are being taken advantage of and I don’t like it.” The $500 billion figure is about the value of Chinese goods imported into the U.S. last year. S&P stock-index futures declined along with the Stoxx Europe 600 gauge after Trump’s comments aired. The threat is likely to put further strain on a trade dispute between the world’s two biggest economies. China accused American officials of making false accusations Thursday as it fired back against a claim President Xi Jinping is blocking talks with the U.S. Earlier, White House Economic Adviser Larry Kudlow said Xi has no intention of making a deal over trade with the Trump administration. Trump earlier this month imposed 25 percent tariffs on $34 billion of Chinese goods, with another $16 billion to follow soon. The administration has also released a list of 10 percent tariffs on an additional $200 billion of Chinese goods, which could take effect as early as next month. China retaliated on the first wave of tariffs by slapping duties on the same dollar amount of U.S. imports, and Beijing has said it’ll fight against any further U.S. actions. China imports far less from the U.S., buying about $130 billion in American goods last year, so it doesn’t have as much to leverage with tariffs, but it could use other measures to hit trade such as tightening regulatory oversight. Trump authorized the tariffs after an investigation he ordered by the U.S. Trade Representative’s office found that China was violating intellectual property rules and forcing American companies operating in China to hand over their technology secrets to gain access to the market. Chinese Commerce Ministry spokesman Gao Feng last week called those accusations “groundless” and said that the U.S. trade penalties contravene rules at the World Trade Organization.
Europe Stocks Slide, Led by Carmakers, as New Trump Tariffs Loom
European stocks plunged, led by the auto sector, as U.S. President Donald Trump said a new round of tariffs on Chinese goods were “ready to go.” The Stoxx Europe 600 reversed earlier gains to fall 0.5 percent after Trump said in an interview on CNBC he is ready to impose levies on all $505 billion of Chinese imports into the U.S. The VStoxx surged while cyclical sectors including auto, mining and construction were among the worst performers. Trump’s remarks indicate his willingness to escalate America’s trade war with China, dashing hopes the two sides would arrive at a compromise before more tariffs were imposed. Meanwhile, German Chancellor Angela Merkel said the European Union is ready to retaliate against any U.S. auto tariffs as it prepares to meet with Trump to discuss the possibility of cutting car duties. The comments come just as global markets were starting to enjoy a reprieve from trade headlines, with attention shifting to the earnings season.
Italian Markets Rattled After Tria’s Future Is Thrown Into Doubt
Italian bonds and stocks fell on concern that Finance Minister Giovanni Tria, whose appointment brought a relative calm to the nation’s markets, may be forced to step down. Short-end Italian bonds led the declines after La Repubblica reported that the country’s populist leaders were united in battle against Tria over nominations for the leadership of state lender CDP. Five Star Movement leader Luigi Di Maio and League chief Matteo Salvini were said to have gone so far as to “threaten unofficially to use the weapon of seeking Giovanni Tria’s resignation.” The securities briefly pared losses after Di Maio and a Treasury spokeswoman denied the reports. Italy’s bond market had taken a breather in recent weeks after being roiled in May as Five Star and the League formed a coalition, but the latest slip shows that investors are still jittery. Tria’s appointment at the end of May heralded a period of relative calm to the nation’s assets, with yields sliding from a peak not seen since the euro-zone crisis. Tria, who was a professor of political economy before he took on his current role, has assured investors that the country remains committed to the euro and vowed to block any moves that would push it toward an exit. He is also seen as a counterweight to the coalition’s radical spending plans ahead of the country’s budget, due before October. “The conflict is not new news, but the prospect of Tria leaving the government is not a positive for BTPs and confidence in the new government,” said Antoine Bouvet, a strategist at Mizuho International Plc. “He was very much the appointment aimed at calming markets earlier this year.” The yield on the nation’s two-year bonds climbed seven basis points to 0.61 percent as of 10:52 a.m. in London. The securities briefly pared losses after the finance ministry dismissed reports of a rift as “pure invention.”
China’s Yuan Stabilizes After Rocky Morning, Stocks Rebound
China’s markets ended Friday on a stronger footing, with the yuan reversing an early slump spurred by the central bank’s move to weaken the daily currency fixing by the most since 2016. The Chinese currency was little changed at 6.7790 per dollar at 5:36 p.m. in Shanghai after falling as much as 0.5 percent to mark a fresh one-year low. Dollar selling by a big Chinese bank helped stem the morning losses, traders said. Stocks also changed course, surging in the afternoon session after a report said regulators will loosen rules on the asset management industry. The yuan’s decline of more than 4 percent over the past month, the steepest among major currencies, has provoked fresh speculation about whether the decline is a natural consequence of policy easing efforts to cushion a slowing economy, and how far officials will let it go. U.S. President Donald Trump told CNBC that the currency is “dropping like a rock,” putting America at a disadvantage as trade tensions escalate. “The PBOC will only let the yuan devalue in an orderly fashion at best, instead of letting it depreciate freely, in order to avoid the risk of capital flight,” said Ngan Kim Man, co-head of treasury at China Everbright Bank Co.’s Hong Kong branch. The Shanghai equity benchmark rallied 2.1 percent, snapping a five-day losing streak, and a gauge of financial companies closed up 3.8 percent, its biggest gain since August 2016. The Hang Seng Index in Hong Kong rose 0.8 percent. The yield on 10-year government debt climbed 7 basis points to 3.52 percent, the biggest increase since October. Analysts said a 21st Century Business Herald report that mutual funds will be allowed to buy non-standard products helped drive the moves. The news boosted risk appetite as previous expectations were for China to ban the buying of such products, said Frances Cheung, head of Asia macro strategy at Westpac Banking Corp. in Singapore.
Asia Stocks Rebound as Chinese Equities Surge, Yuan Erases Loss
Asian equities erased earlier losses as Chinese stocks surged after a report said regulators will loosen rules on the asset management industry. The yuan wiped out an earlier decline amid suspected intervention from officials. The MSCI Asia Pacific Index rose 0.5 percent to 165.41 as of 3:15 p.m. in Hong Kong. The Shanghai Composite Index rallied 2 percent as a gauge of financial companies gained on a report in 21st Century Business Herald that said mutual funds will be allowed to buy non-standard products, said Zhang Gang, a strategist at Central China Securities. Speculation that Chinese officials were seeking to cool declines sent the yuan higher as a big Chinese bank was seen offering to sell the dollar when the yuan weakened to 6.81 this morning, according to traders. “The bounce in the yuan helped ease the market’s nervousness with the currency’s continued weakness, which could lead to a round of competitive devaluation across the region if it’s not arrested,” said Astro del Castillo, a managing director at First Grade Finance Inc.