This week: Trade wars prove challenging, Italian policymakers agree on stance about EU and FTSE 100 hits high note on fall against U.S. dollar.
“Trade wars are good, and easy to win…” President Donald Trump said on March 2, 2018. “…this will be too hard to get done.” President Donald Trump said on May 23, 2018.
Prior to becoming president, Trump seemed confident that he could get things done easily. These included repealing Obamacare, which he had called “disastrous” and “so easy” to repeal. As for rebuilding “crumbling” schools, roads and railways, he had said it would be “by far the easiest to do.”
And then there’s trade with China. This one was supposed to be “easy” too. And, indeed, after a series of tit-for-tat tariffs (steel and aluminium versus beef and soybeans) and much puffing of chests, both sides seemed to be leaning towards a deal. On Monday, U.S. Treasury Secretary Steven Mnuchin stated that “we’re putting the trade war on hold.” Investors, it appeared, were relieved because markets climbed.
But it didn’t last long. Thanks to pressure from trade hawks and critics alike, President Trump appeared to “walk back” the prospect of an agreement later in the week, stating that it would be “too hard to get done” in its current form. For good measure, he also said there were $50 billion in additional tariffs ready to go if China didn’t like it. Beijing, as expected, said it would respond in kind. Investors, it then appeared, weren’t so relieved because markets fell.
“Rocket Man” gets the rocket
Not content to leave it there, on Thursday, President Trump called off his much-anticipated summit with North Korea’s Kim Jong-Un, set for June 12. The reason for the about face? Kim’s “tremendous anger and open hostility.” It didn’t turn out to be the “big success” that had been promised.
The full Conte
Italy’s current political class know all about negotiation, too. Ever since the general election on March 4 ended in a hung parliament, lawmakers from the Five Star Movement (anti-establishment) and the League (far-right) have been locked in talks to form a coalition government. This was virgin territory for both parties and the only thing they really agreed upon was that they hated the European Union (EU).
In the event – and with Italian stocks tanking and bond yields rising – the two parties agreed to form a “neutral” coalition, with political neophyte Giuseppe Conte set to be Italy’s next prime minister. Investors, though, were wary. For one thing, the new coalition has promised a €120-billion-a-year ($140 billion) spending spree, covering everything from a flat-rate tax and pension reform, to a universal basic income and free nappies (for babies, we assume). This bonanza will further engorge the country’s already corpulent debt pile, at 130% of gross domestic product (GDP) and put it squarely at odds with the EU’s strict budgetary rules. The coalition’s policies on immigration (they have pledged to kick-out half-a-million “irregular immigrants”) and Russia (they want sanctions lifted immediately) are also ruffling feathers in Brussels. Meanwhile, there’s the issue of Italy’s floundering banks.
On the markets
Markets had started the week in a sprightly enough fashion, thanks to the (short-lived) improvement in China/U.S. relations and “dovish” statements from the U.S. Federal Reserve (Fed). The latter bolstered sentiment after it said it didn’t think the recent jump in inflation would necessitate raising interest rates faster than currently forecast.
In the UK, the FTSE 100 Index hit an all-time high on Tuesday, as the pound fell against the U.S. dollar. This came after a surprise fall in UK inflation. It was of particular benefit to many FTSE 100 companies that generate the lion’s share of their profits overseas. When the pound weakens these profits are then worth more in sterling terms. Thereafter, markets staggered as a result of weaker Eurozone and Japanese economic data, and the China/North Korea disappointments. Over the week to the close on Thursday, the FTSE 100 index was 0.8% lower, the FTSE World Europe (ex-UK) had lost 1.2%. The U.S. market managed to cling on to its earlier gains, ending 0.6% ahead.
Parenting is hard enough at the best of times, so spare a thought for Mark and Christina Rotondo. The U.S. couple were in court this week to file an eviction notice – against their 30-year-old son. Michael – who is unemployed and, by all accounts, quite the layabout – contested the judge’s order, whining that it was “really unfair to me and really outrageous.” The judge begged to differ, giving Michael 11 days to vacate his parents’ pad. Still, Michael’s fortunes might soon change. He’s currently suing Best Buy for over $330,000 because they fired him two years ago after he refused to work Saturdays.
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