The trade stand-off between the US and China has come into focus over the past weeks as negotiations between the two countries have worsened. After US credit and equity markets suffered their worst weekly performance of 2019 last week- (the BBG Barclays US Corporate index was 5bp wider, and the S&P 500 was down 2.2%)- risk assets appear to have stabilized this week, as investors have begun to digest the initial concerns over the impact that increased tariffs might have. Based on recent changes in the trade war, a major bank’s economists assume that the US will place tariffs on most imports from China and that China will respond with measures of its own, although not in proportion. The bank’s economists estimate that the direct net economic loss to the US will be only 0.2-0.3% of GDP, although the loss to US consumers will be higher. Segments of the corporate universe, with significant exports/imports to and from China, could be more at risk.
Over the last week, investor attention shifted from concerns around US-China trade tensions toward still-strong signals regarding the health of the US economy. US survey and housing market data was strong last week, although retail sales and industrial production surprised to the downside. Given the strong results, many believe that the US Federal Reserve will keep policy unchanged for the remainder of the year.
Fixed income markets remained relatively calm this week as the new administration begins its 100-day plan, with investors still weighing how policies will affect their portfolios.
Fixed income investors are anticipating additional stimulus but fear inflation on the back of increased government spending; Powell reiterates that bond market programs won’t be tapered soon.
Who said 2021 was going to better than 2020? 2020 vibes are still lingering out there as investors are already looking towards the back half of 2021 for some sense of normalcy and recovery for the pandemic to be well ...