Market update: Stocks drop globally after Powell and the Trump tariffs

2 Mar

by Mihály Tatár


Good Morning!


  • Fed Chairman Powell gave another un-dovish speech, and on the top of that, Trump announced the long-in-the-making tariffs on steel (25%) and aluminium (10%). The two news together made the day for short sellers (SPX -1.33%, Dow -1.68% led by export companies, Boeing -3.5%, Intel -3%, Caterpillar -3%, Cisco -2%; DAX -1.97%, Nikkei -2.68%, Hang Seng -1.46%), with US steel companies rallying more than 6% and Asian steelmakers dropping 4% on average. It’s interesting to see how incredibly angrily the mainstream and financial media reacted (’there will be retaliation’, ’the US shoots itself in the foot’, ’it won’t hurt China at all’), personally making me suspicious that it was the perfect first move. (The only serious counterargument I read says the tariffs are misplaced: The real problem – the erosion of the US industrial base – is the chronic underinvestment in capital intensive manufacturing, as Western companies can’t compete with Asian national subsidies. Just think of solar panels, where 50% of global production was made by the US in 2007, but after Beijing targeted the industry with massive investment subsidies, it dropped to 7% by 2011 and China dominates ever since. Mistargeting tariffs may turn the US into an raw material exporters on the model of Brazil.) Traders reflexively sold the Dollar and bought bonds as well (EURUSD 1.2270, US 10Y yield 2.82%), ignoring macro data completely (the US ISM manufacturing index showed the stongest sentiment since 2014, while European factories cooled down somewhat), and the trade-war fears made another leg lower in oil prices, as well (WTI 60.90, Brent 63.80 USD).


  • Further showing the magnitude of the issues with world trade, China just announced it plans to raise 31 billion USD to invest in homegrown chip (semiconductor) production, to eventually offset imports and boost domestic technology companies from telecom giants like Huawei to high-tech electronics produers. While the EU is busy with arguing whether there are or aren’t migrant no-go zones (Merkel just admitted they exist, making her own camp speechless after years of denying), Trump’s Washington is likely to retaliate with its own initiatives, resulting not in a trade, but in a technology war.


  • The misery of Venezuela continues without knowing limits: It is now estimated that 3 million people have illegally left the country to avoid starvation (that’s 10% of the total!), with zoos forced to slaughter animals for food. As discussed last year – despite desperate calls from aid agencies – no country in the region has the stomach to intervene militarily – then they would become responsible for rebuilding and feeding what is left after ’socialism’.  Traders wait for the May 20 election clown show – the US threatened with crippling energy sanctions if it was fixed, possibly destroying the oil industry, the last revenue source of the country and decreasing global crude supply.


Have a nice day,



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