President Donald Trump’s latest missives on trade are a wake-up call to markets close to record highs that a major deadline is looming with China.
The Dec. 15 flashpoint on tariffs was thrown into sharp relief on Tuesday when Trump said he sees no urgency to complete a deal. “If tariffs scheduled for Dec. 15 are implemented it would be a huge shock to the market consensus,” said Sue Trinh, MD for global macro strategy at Manulife Investment Management in Hong Kong. “Trump would be the Grinch that stole Christmas,” she said.
The following are the views of a number of market participants on what happens if the tariffs on China kick in Dec. 15.
It will be “definitely risk-off across the screen,” said Tongli Han, Chief Investment Officer at Deepblue Global Investment.“What happened recently makes this trade deal more costly for Chinese leaders -- so I’m seeing a gloomy future for the short term, one-to-two months.”
With the clock running down on 2019 and a prospects of a trade deal looking more remote it’s time for investors to take a little bit of risk off the table, said Steve Brice, Chief Investment Strategist at Standard Chartered bank.
“It looks like it’s going to be pushed to the beginning of next year at the best case,” Brice said. The message to investors is “maybe trim a little bit of equity exposure, or certainly not chase the market at this stage. But look to do so in the next few weeks if we see a 5-to-7 per cent pullback.”
Longer term, Brice remains optimistic “the U.S. and China will still strike a deal of some sort. That will reduce uncertainty and help the global economy do well.”
For Kerry Craig, global market strategist at JPMorgan Asset Manage-ment, a key concern is markets have already priced in the prospect of a trade deal that has yet to be signed.
“There had been a lot of optimism built in around a trade deal and it’s still the thing that will weigh on markets over the coming months,” Craig said on Bloomberg TV. “In the meantime we need to see more of a pick-up in the global economy to really offset some of those uncertainties.”
For some, the retreat in equities at the start of the week already presents a buying opportunity.
“I’d fade the correction today,” Eli Lee, head of investment strategy at Bank of Singapore, told Bloomberg TV.
The renewed tariff pressures on South America and Europe are likely an effort to bolster Trump’s “tariff man” image ahead of a trade deal with China, he said.
“With the economy in a very delicate situation, if this came on, it would seriously ratchet up the risk of a recession—and the White House wouldn’t want this situation going into the 2020 presidential election next year,” Lee said.
There may be some massive initial market swings in store, said Chris Weston, head of research at Pepperstone Group Ltd. in a note to clients.
“We could face a wild day,” he said. The S&P 500 is likely to fall about 2 per cent, with currencies including the yuan, Australian dollar and Korean won also likely to move, he said. A relief rally may be in the offing afterward, particularly if there’s agreement to revisit talks in 2020, he said.