Market update: Trade war fears continue as Trump threatens angry Europe, Italian elections go out of hand

5 Mar

by Mihály Tatár


Good Morning!


  • Amid the global media rage, the US President only doubled down on the new tariff campaign and tweeted that ’trade wars are good and easy to win’, coupled with a threat at Europe (’if the EU wants to further increase their already massive tariffs and barriers on US companies, we will simply apply a tax on their cars’) after Jean-Claude Juncker forgot himself again and talked about retaliating, using Harley Davidsons and jeans. (It’s worth mentioning that the US is the largest EU car export market at 25%). These newslines didn’t help the sentiment at all, and risky assets kept falling (somewhat amusingly, with the exception of the US – hey, wasn’t world trade supposed to be a non-zero sum game?, SPX +0.51%, DAX -2.27%, MIB -2.13%, Nikkei -0.69%, Hang Seng -1.35%). Most currencies remained passive before the European political  developments (EURUSD 1.2310, GBPUSD 1.38, EURPLN 4.18, EURHUF 313.80), while currencies of the countries hit the most by the steel and aluminium tariffs – Canada, South Korea, Brazil and Mexico – kept weakening (CAD -2%, KRW -1%, BRL -1%,  MXN -2%). Interestingly, China remained the coolest about the tariffs, announcing it doesn’t want a trade war and invited the US to a new round of trade talks. (This shouldn’t really surprise anyone who is not a journalist, China has a 400 billion USD trade surplus with the US. Beijing will be more upset when Trump begins to target tech transfers and electronics.)


  • While in Germany, the SPD party members voted for the coalition, allowing Merkel to finally form a government (good luck with the EU-wide minimum wage, guys), in Italy, the election went somewhat out of hand as both the anti-refugee Northern Leage (37% together with Forza Italia) and the anti-Brussels Five Star (becoming the largest single party at 28%) came out as even stronger than forecasted. (The pro-Brussels Left diminished to 27%). Analysts now expect a hung parliament and an ungovernable country – I suspect this is also a hope on their part – and given the programmes of the winning parties, the big EU reforms scheduled for 2018 are in trouble (kiss goodbye to the banking union and a meaningful EU finance ministry, for example). In my personal opinion, it is not that anti-establishment parties were so wonderful (Five Star leaders periodically say so stupid things not even Trump would get away with), the unfortunate fact is that pro-EU parties had simply nothing to offer. (The Maastricht rules and the euro did crash Italy’s growth potential, and the ’side effects’ of Berlin’s refugee policy can be felt  everywhere in Italy.)



Have a nice week,



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