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LGT Navigator: Threat of new punitive tariffs frightens off investors

December 3, 2019

Initially, encouraging industry data from Asia and Europe provided a positive start to the week on the stock markets, reports of faltering trade talks between the US and China and Trump's threat to reactivate punitive tariffs on Brazilian and Argentine steel imports and to impose penalties on French imports due to the possible introduction of a digital tax in France promptly dampened investors' buying mood.

Geopolitics trade war

The US government threatens France with punitive tariffs. The background is the possible introduction of the controversial digital tax in France. The tax would specifically discriminate against large US companies such as Amazon, Google or Facebook, the US government argues. For this reason Washington is considering punitive tariffs of up to 100% on French imports worth around USD 2.4bn, US Trade Representative Robert Lighthizer warned. This would affect handbags and some cosmetic products as well as champagne and various dairy products such as cheese or butter.

The US government also announced yesterday that it would immediately reintroduce import duties on steel and aluminum from Brazil and Argentina. US President Donald Trump justified the move with the massive devaluation of the currencies of the two South American countries against the US dollar and the resulting disadvantages for American soya and maize producers. In connection with the strong greenback against other currencies, Trump also renewed his criticism of "his" central bank. The Fed must lower interest rates so that the US does not suffer any disadvantage on the world market from the strong US dollar. With regard to the Brazilian real or the Argentine peso, however, homemade economic or political problems are responsible for the currency devaluation.

In addition, US Secretary of Commerce Wilbur Ross warned China that the planned tariff increases against Chinese imports would come into force if no agreement was reached with Beijing.

As a result, the stock markets turned negative and recorded losses in Europe of up to -2%. Concerns about a renewed escalation of the trade war eclipsed record sales in the US retail sector on "Cyber Monday". Sales are said to have increased by around +17% compared to the previous year.

Mixed signals from US manufacturing – ISM-PMI remains clearly below growth threshold

The ISM Purchasing Managers' Index (PMI) for the US industrial sector, which is highly regarded for its strong correlation with overall economic growth, stabilized around the 48-point mark in November, remaining well below the 50 point growth mark. In addition, analysts' expectations, who had forecast an improvement in the PMI to 49.2 points, were clearly missed. At the same time, however, the London research institute IHS Markit suggested a somewhat more confident assessment. The corresponding purchasing managers' index for US industry improved surprisingly strongly in November from 51.3 to 52.6 points. Overall, this seems to indicate that a certain consolidation is taking place worldwide in the industrial sector following the collapse intensified by the trade conflict. IHS-Markit chief economist Chris Williamson commented that the third monthly increase in a row shows that the US industry is leaving its weak phase behind.

A ray of hope for the European industrial sector

In the euro zone, a certain stabilization seems to be emerging in the recession-stricken industrial sector. According to IHS Markit, the purchasing managers' index for the manufacturing sector rose from 46.6 to 49.9 points in November. In September, the sentiment indicator had reached its lowest level in seven years. Despite the slight improvement, the industrial sector in the euro zone remains clearly below the expansion threshold of 50 points. According to IHS-Markit chief economist Chris Williamson, the industrial sector should continue to weigh heavily on the euro-area economy in the final quarter. At the very least, there are encouraging signals that nourish hopes that the worst could be over, unless the trade conflict or the Brexit causes new setbacks, Williamson commented.



Economic Indicators December 3

MEZ Country Indicator Last
08:30 SZ Consumer Prices (y/y) -0.3%
11:00 EZ Producer Prices (y/y) -1.2%

Earnings Calendar December 5

Country Corporate Period
US Kroger Q3



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