US equities were resilient to trade wars – ANZ

US equities were resilient to trade wars – ANZ

Analysts at ANZ explained that after the US slapped tariffs on USD200bn of Chinese goods yesterday, China retaliated with 5-10% tariffs on USD60bn worth of imports.

Key Quotes:

“US equities were resilient, perhaps due to the staggered implementation of tariffs by the US.”

“Dow Jones was up 0.8% and S&P 500 up 0.7%. European shares also rose, but by about half of the US move.”

“The USD was mixed in the G10 with JPY falling and CAD outperforming. “

“Treasury yields rose with the 2-year up 1.7bps and 10-year up 6bps. Global yields were biased higher. Oil rose 1% and gold fell 0.3%.”

US implemented 10% tariffs on USD200bn of Chinese imports to come into effect from September 24, increasing to 25% from 1 January 2019

“When announcing the tariffs, the US said the staggering was to allow US businesses a chance to adjust and develop alternative supply chains. In retaliation, China announced 5-10% tariffs on USD60bn worth of US imports.”

“China is limited in its scope for direct retaliation from here, with only USD50bn worth of imports left to target, but so far has refrained from threatening to tariff all imports from the US.”

“Separately, China also filed a complaint with the WTO over the tariffs.”

“China’s retaliation runs the risk of provoking further measures from the US, with the US having threatened further tariffs on $267bn of Chinese goods if China retaliates. Such escalation would lead to all US imports from China being tariffed.”

“Increasingly it looks like the trade saga will be a prolonged dispute.”

“And as the trade war escalates, so does the potential economic fall-out.”

“Bloomberg estimates that currently-announced tariffs could cumulatively subtract 0.9ppts from Chinese annual GDP growth, potentially increasing to 1.5ppts if the US follows through on its further threats. It’s expected that the Chinese government will continue to take measures to offset the negative effect of the tariffs, but the risk that Australia and New Zealand are affected is increasing.”

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