Korea ‘dividend’ for emerging markets
By Peter Rosenstreich
While the media is stuck on ‘trade war’ hype, markets are focused on easing geopolitical tensions. Unexpectedly, US President Donald Trump is taking steps to meet North Korean leader Kim Jong Un. We are shocked not only by the move’s depression of volatility as measured by the VIX index, but also by Trump’s ability to shift the global narrative. Even for the most hardened free-trade capitalist, the effect of marginal tariffs on steel and aluminum (in a sector rife with complexity) pales in comparison to that of a non-belligerent North Korea. Lower tension in Asia will have a broad, long-lasting effect: time to reload on emerging markets!
Trump already watered down his tariff talk by exempting Canada and Mexico and extending the option to allies, but still, risk barometers such as CHF, JPY and Bitcoin weakened on the ‘trade winds’. More watering will come: challenges to the duties will soon hit the World Trade Organization (WTO) We already expected a watering down, but we never imagined engagement with North Korea.
At a smaller scale, markets will focus today on publication of US payroll employment data, although a slightly-higher-than-expected figure will not move central bank interest rates. A few more basis points will not convince investors to part with higher yielding, promising emerging market assets. Non-farm payrolls are expected to hit 205,000. If that includes a solid gain in wages, this will boost the case for a hawkish hike from the Fed.
China retaliates on Trump-Tariffs
By Vincent-Frédéric Mivelaz
Foreign Minister Wang Yi said China will respond to US President Donald Trump’s proposed import duties on aluminium and steel. Although these account for less than 3% of the PRC’s exports, China put a shot across the US president’s bow. Chinese equities remain strong in today’s trading. Hong Kong’s Hang Seng and the Shanghai Composite are at 3’305 and 30’975 (+1.02% and +0.50%), increasing by +3.63% and +1.51% over the week.
Ironically, China’s trade surplus with the USA decreased in recent years, valued at USD 437.9 billion in February 2018 and USD 593.9 in December 2015. Moreover, the White House confirmed potential tariff exclusions for Canada, Mexico and ‘other countries’, signalling a readiness to negotiate the actual outcomes. Accordingly, we see the current proposal as a tactic triggered to depress future surpluses.