Wall Street builds immunity to trade war rhetoric

Fears of tariffs and a potential global trade war have jostled US stocks over the past few months on Wall Street. (AFP Photo / Stan Honda / AFP)
Updated 17 June 2018

Wall Street builds immunity to trade war rhetoric

  • US President Donald Trump announced hefty tariffs on $50 billion of Chinese imports on Friday
  • he benchmark S&P 500 index ended down only 0.1 percent on Friday

NEW YORK: Fears of tariffs and a potential global trade war have jostled US stocks over the past few months, but there is a sense among investors that the market is taking the drum beat of rhetoric and statements more in stride.
In the latest salvo, US President Donald Trump announced hefty tariffs on $50 billion of Chinese imports on Friday, and Beijing threatened to respond in kind.
But even as the developments threatened to ignite a trade war between the world’s two largest economies, the equity market largely shrugged it off. The benchmark S&P 500 index ended down only 0.1 percent on Friday.
That paled compared to losses earlier in the year that were sparked by fears of a US-China trade war that would be detrimental to economic growth.
“The market has gotten reasonably comfortably numb to this tariff stuff,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. “They are becoming more accustomed to this being a first foray and negotiating tool.”
The US Customs and Border Protection is to begin collecting tariffs on an initial tranche of 818 Chinese product categories on July 6.
“It’s kind of the cry-wolf syndrome,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “I think people fear the tariffs and the uncertainty about it, but think, ‘OK, this is just another negotiating point.’“
On March 1, the S&P 500 declined 1.3 percent when Trump announced plans for hefty tariffs on steel and aluminum imports to protect US producers.
Later in March, the S&P 500 tumbled 2.1 percent on another day of apparent escalating US-China tensions.
So far, Trump has taken little action beyond tariffs of 25 percent on steel and 10 percent on aluminum on imports from China, the European Union and other countries.
The market has grown more used to Trump’s style, especially when it comes to international affairs, investors said.
“The market is starting to get accustomed to the president, the way the president negotiates, the way the president tries to prove his point,” Carlson said. “There is a growing awareness of how the president tries to do business.”
To be sure, certain areas of the market remain sensitive to rhetoric about trade.
The S&P 500 industrial sector, which includes multi-national companies such as plane maker Boeing and heavy machine manufacturer Caterpillar, has lagged the market since trade war concerns flared in March. Industrials dropped 0.25 percent on Friday, worse than the broader index’s decline.
Steel shares also have been jostled, as investors weigh benefits from protective measures against fears a trade war will undermine global demand.
Auto investors have also been whipsawed by trade policy. Potential higher steel costs stemming from tariffs could hurt car makers, while the Trump administration has launched a national security investigation into car and truck imports that could lead to new US tariffs.
“The prospects of a trade war are fairly significant,” Tuz said. “It’s just an uncertainty that investors haven’t had to deal with for a long time.”


OPEC sees small 2020 oil deficit even before latest supply cut

Updated 12 December 2019

OPEC sees small 2020 oil deficit even before latest supply cut

  • OPEC keeps its 2020 economic and oil demand growth forecasts steady and is more upbeat about the outlook

LONDON: OPEC on Wednesday pointed to a small deficit in the oil market next year due to restraint by Saudi Arabia even before the latest supply pact with other producers takes effect, suggesting a tighter market than previously thought.

In a monthly report, OPEC said demand for its crude will average 29.58 million barrels per day (bpd) next year. OPEC pumped less oil in November than the average 2020 requirement, having in previous months supplied more.

The report retreats further from OPEC’s initial projection of a 2020 supply glut as output from rival producers such as US shale has grown more slowly than expected. This will give a tailwind to efforts by OPEC and partners led by Russia to support the market next year.

OPEC kept its 2020 economic and oil demand growth forecasts steady and was more upbeat about the outlook.

“On the positive side, the global trade slowdown has likely bottomed out, and now the negative trend in industrial production seen in 2019 is expected to reverse in 2020,” the report said.

Oil prices were steady after the report’s release, trading near $64 a barrel, below the level some OPEC officials have said
they favor.

The Organization of the Petroleum Exporting Countries, Russia and other producers, a group known as OPEC+, have since Jan. 1 implemented a deal to cut output by 1.2 million bpd to support the market. At meetings last week, OPEC+ agreed to a further cut of 500,000 bpd from Jan. 1 2020.

The report showed OPEC production falling even before the new deal takes effect.

In November, OPEC output fell by 193,000 bpd to 29.55 million bpd, according to figures the group collects from secondary sources, as Saudi Arabia cut supply.

Saudi Arabia told OPEC it made an even bigger cut in supply of over 400,000 bpd last month. The Kingdom had boosted production in October after attacks on its oil facilities in September briefly more than halved output.

The November production rate suggests there would be a 2020 deficit of 30,000 bpd if OPEC kept pumping the same amount and other factors remained equal, less than the 70,000 bpd surplus implied in November’s report and an excess of over 500,000 bpd seen in July. OPEC and its partners have been limiting supply since 2017, helping to revive prices by clearing a glut that built up in 2014 to 2016. But higher prices have also boosted US shale and other rival supplies.

In the report, OPEC said non-OPEC supply will grow by 2.17 million bpd in 2020, unchanged from the previous forecast but 270,000 less than initially thought in July as shale has not grown as quickly as first thought.

“In 2020, non-OPEC supply is expected to see a continued slowdown in growth on the back of decreased investment and lower drilling activities in US tight oil,” OPEC said, using another term for shale.