NEWS, VIEWS & TRUTHS (2ND JUL – 6TH JUL)

Is this weather ever going to end? Is this the new normal? Let’s hope so and welcome to this week’s News, Views and Truths.

And it is firmly a game of two halves this week, kicking off with an escalation in the seemingly imminent global trade war.

The US imposed tariffs on $34bn of Chinese imports, commencing at midnight last night, ranging from farming plows to semiconductors and airplane parts. Trump then told journalists that another $16bn of tariffs could follow in two weeks, before suggesting that the final total could eventually reach $550bn, a figure that exceeds all US goods imported from China in 2017.

China immediately responded, accusing the US of “trade bullying” and promising to respond by imposing greater levies on an equivalent amount of goods ranging from American soybeans to cars.

The markets barely blinked at this news, highlighting the fact that they have already factored in this initial round of tariffs. And there is a view that this course of action is a front for Trump’s main agenda which is to effectively strong-arm a more preferential trade deal with Europe as these initial tariffs require a significant hike to become a trade war in the traditional sense.

However, as the consequences of a full blow trade war are significant, they should still remain a cause for concern. China owns 10% of all US Treasuries, which gives them the nuclear option of dumping them onto the market, pushing up interest rates at a stroke while simultaneously trashing the dollar. Even the EU could hit back at the US by devaluing the euro. Inflation on both sides of the Atlantic would rise, with US companies ironically having their margins squeezed by the soaring costs of imported raw materials.

In the event of a global trade war the only sectors that will be partially shielded will be domestic defensive stocks such as utilities and financials as rising interest rates typically benefit banks. However, even if a trade war doesn’t materialise it is our view that it is worth holding these sectors across our portfolios as we are entering the final stages of the economic cycle, with pockets of overvaluation spread throughout the market. Either way, we continue to view these global macroeconomic events with our usual caution.

And I could not conclude this week’s blog without a mention of tomorrow’s football match. If you weren’t aware, England will play Sweden in the quarter finals of the World Cup, kick off at 3pm, our time. England are favourites to win. However, as the Swedish ex-England manager Sven Goran Eriksson has stated this week, “England is England, now they think they’ll win the World Cup again.” He goes onto say, “Frankly, they have beaten Tunisia and Panama. It takes a little more to win the World Cup. They will not get so many opportunities against Sweden.”

Aye right Sven bonny lad. We will see.

To finish off in our usual fashion, this week’s playlist is supplied by our very own Pauline Wolf, who retires from Three Counties today. I would like to take this opportunity to thank her for all her valued work over the years and wish her the very best in the next chapter of her story. You will be hugely missed by us all you little star!


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