March 5, 2018
Asian markets are falling as the Chinese People's Party Annual Congress begins
Asian markets traded lower on Monday, March 5, as Chinese leaders kicked off the Party's Annual Congress and in Italy Sunday election results indicate that no party is emerging with a clear majority.
The Japanese Nikkei 225 dropped 0.97 percent. Kospi lost 1.02 percent. The ASX 200 fell by 0.66 percent, with the financial sub-index dropping by 0.92 percent. China's continental markets fell, with the Shanghai compound dropping 0.16 percent.
The meeting of China's National People's Congress began on Monday morning, with Prime Minister Li Keqiang announcing a growth target of about 6.5 percent by 2018. Over the next two weeks, Parliament will pass important bills, the budget and new appointments.
The Asia session followed a mixed finale on Wall Street last Friday, where investors remained focused on President Donald Trump's announcement that he would introduce tariffs on steel and aluminium imports.
Starting at local time on Sunday night, the results of the Italian elections indicated that a centre-right block will win the majority of seats in Parliament.
In Germany, the Social Democrats supported the coalition agreement with conservatives led by Chancellor Angela Merkel. This will allow Europe's largest economy to form a new government and mitigate political uncertainty.
The euro declined in Monday's Asian session, but remained prone to volatility as early results from the Italian elections indicated that the Eurosceptic parties were stronger than expected and no major bloc achieved an absolute majority. The common currency found some support in the SPD's German Social Democrats who voted decisively in favour of another coalition with conservatives such as Chancellor Angela Merkel.
Oil prices rose on Monday, ahead of the meeting between OPEC and U. S. oil shale companies. This raises expectations that oil producers will discuss further how to clean up excess oil globally. The oil ministers of the Organization of Petroleum Exporting Countries, and other global players in this sector, will meet in Houston on Monday at the world's largest conference by the energy industry.
Gold prices rose on Monday as the dollar held on to fears of a global trade war and rising sterling prices. Uncertainty about the outcome of the elections in Italy, which could give rise to new concerns for the euro area, gives more support to the yellow metal.
European markets are expected to open Monday's session downwards.
Dow Jones Falls 1.7% on Trump's Announcement
Dow Jones Falls 1.7% on Trump's Announcement of Steel and Aluminum Tariffs.
New decreases in the North American market on Friday, March 2, due to the comments of Donald Trump in Tweeter in favor of unleashing a commercial war that nobody sees with good eyes.
Trump's measure, which provides for tariffs of 25% on steel and 10% on aluminium, is aimed above all at curbing imports from China, which is expected to respond strongly. The Dow Jones fell by 1.7% and again lost 25,000 points.
The problem with the trade war is that everyone around America is not going to stand still. For example, Europe has already said that it has the power to counterattack, China laughs a lot at these measures, and it will also do its own, and Russia will do exactly the same.
It seems that free trade, or world trade conditions, are changing and this reminds us very much of a situation that has already occurred in the past and has disrupted the progress of the world economy.
New disastrous session in the European market.
Last Thursday, and throughout the morning of Friday, March 2, there was a rush of ink on the subject of US tariffs. We try to anticipate what they may mean for the economy. In addition, it has looked back at other times when he has also tried to protect the North American sector from imports from abroad. None of the attempts were successful, quite the opposite.
The point is that, apart from Europe, it is all values related to manufacturing industry within the United States that are suffering. If they cannot buy cheap raw materials, they have to buy their own ones created within the United States, which are more expensive, which means that costs increase.
This cost is either borne by the company itself, which means a reduction in profits, or it is charged to final prices. As prices rise, inflation rises and they are also less accessible to the consumer, so there would be fewer sales. In any case, the industry is damaged.
This situation means that the valuations of listed companies have to adapt to the situation, in an environment of rising interest rates and with more difficulties to be able to operate due to rising costs.
With all this, the slump in stock markets around the world is totally justified.
New tariffs on steel and aluminium in the United States
The European Union warns Trump that it will take a number of measures if its new tariff policy comes into force, and China calls Trump's proposals 'stupid'.
Commercial warfare is served. No one takes a hit and remains indifferent if he has the strength to return it. Both the EU and China have plenty of strength.
On June 7,1930, in the midst of the Great Depression, the Hawley-Smoot Act was passed in the United States.
It was a bill proposed by these two senators that set tariffs as a magic measure to alleviate the depression.
While the first effects benefited U. S. industries and farmers in the short term, over the months it was felt that tariff retaliation from the rest of the world was detrimental to international trade. Particularly the export of North American products, causing injury to their industry. It also caused the stock market to collapse in 1930.
Now, on a smaller scale, it could be the same. It will be bread for today and hungry for tomorrow. It is an outdated measure in a world that no longer functions like this.
Dollar/yen remains a reference to consider when risk problems happen
The current situation has made the interpretation of the currency market's movement in relation to risky assets quite complicated because the US is in a cycle of interest rate hikes and yet the dollar is weakening.
It seems that the market is more attentive to the Bank of Japan's and the ECB's turnaround than to the Federal Reserve's move.
The point is that the dollar/yen pair has always been a reference for knowing if they were borrowing in the Yen, with lower interest rates, and putting them in riskier assets in the United States with higher returns. A highly profitable form of leverage.
During the financial crisis, the pair began to fall sharply as previous positions were unravelling. This movement is taken as a reference point.
The threat of trade war disrupts the correlation between FTSE100 and the euro/pound crossing
In favor of the index's reaction, we must bear in mind that there have been some data from China that have made us feel very bad. The core resource sector has been damaged, along with the negative performance of oil.
With the trade war the situation worsens, because all raw materials are subject to tariffs. So those quoted in the British index, plagued by mining and oil companies, have that point against them.
This is counteracting the perception that, if there is an economic slowdown in the country as a result of this trade war, in addition to increased tensions with the European Union, the pound should weaken as the economic outlook is not positive.
Everyone prepares for a trade war
The United States is driving up tariffs. Europe is preparing similar measures to defend itself, and that reminds us of what happened with Russia and the annexation of the Eastern Crimea.
Russia took that step because it knew that Europe depended on its energy in the middle of the continent for winter. In addition, the incipient recovery of the economy increased the likelihood that Europe would not dare to impose sanctions that would bounce back its economy, as it did.
It was an act of force, and Germany was not shaken by the pulse. But this postponed the economic recovery.
Now America has more power than Europe and Trump can play the same game.
We will see how events unfold, because this may be the prelude to a slowdown in economic growth. In addition, you'll see if the money stays in equity or looks for fixed income.
The threat of a slowdown in the advance of the economy means that more interest rate hikes are coming in than expected.
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