The rally of retaliatory trade measures between Washington and Beijing continued this week. After the U.S. announced that it would impose 25% levies on $16 billion of Chinese goods beginning on August 23, China announced matching measures to take effect on the same day.
After so many rounds of “tit-for-tat” tariffs, perhaps investors are becoming inured to the trade war. That might explain why the latest hostilities had only a short-lived impact on China’s long-suffering equity markets this week. Although the A-share market fell heavily on the announcement, investors soon shrugged off their woes as they focused instead on hopes that Beijing would provide further support for the technology sector. In China’s healthcare sector, which was recently afflicted with a vaccine scandal, beaten-up stocks benefited from bargain-hunting. The CSI 300 Index1 ended the week up 2.5% by Thursday’s close, although it is still down heavily for the year to date.
It wasn’t just Beijing in Washington’s sights this week. The Trump administration reimposed economic sanctions on Iran, including a ban on using the U.S. dollar and restrictions on automobile and mineral trading. The administration took this action despite strong opposition from the European Union (EU) and the UK, which are committed to preserving the denuclearization deal struck with Tehran in 2015.
The U.S. also announced that it was imposing fresh sanctions on Russia in the wake of the nerve-agent attack in Salisbury. The UK government, meanwhile, was reported to be preparing to seek the extradition of two Russians accused of carrying out a nerve agent attack on an ex-Russian spy and his daughter in the UK in March.
Neither the Chinese trade war nor the diplomatic tensions had much effect on the U.S. stock market, however. The broader-market S&P 500 Index finished up 0.5% through Thursday, falling short of the new record high that some had hoped for. During the week, U.S. stock-market volatility, as measured by the CBOE Volatility Index (VIX),2 fell to a six-month low. The Nasdaq Composite Index outperformed the S&P 500, with technology shares extending their year-to-date dominance.
Tesla maneuvers leave investors in the dark
One tech stock that burned particularly brightly at the start of the week was electrical-car manufacturer Tesla. Its shares shot up on Tuesday after Elon Musk, the company’s founder, tweeted that he was considering taking the company private and had secured the funding to do so.
Along with a surge in Tesla’s share price, Musk’s musings caused considerable consternation. There was much speculation as to the source of this funding. Some commentators noted that if Musk turned out not to have funding in place, he could be in legal difficulty, as his tweets might amount to market manipulation. The US Securities and Exchange Commission was reported to be tightening its scrutiny of the company. By Thursday’s market close, doubts about the plan had helped to take the shine off Tesla’s shares, although they still outperformed the overall return of the Nasdaq.
As has been so often the case since June 2016, the FTSE 100 Index’s3 strong showing stemmed from a slump in sterling. The pound fell to a nine-month low against the U.S. dollar on Wednesday. The slide was prompted by growing speculation that the UK would leave the EU without a trade deal. This was fueled by Liam Fox, the international trade secretary, who said that a no-deal scenario was likely. But against that, Dr. Fox was able to announce that the island of Taiwan would open its market to British pork.
Across the English Channel, continental European markets were volatile this week. The announcement of the U.S. sanctions on Russia caused some concern mid-week, erasing most of the gains made earlier. The FTSE World Europe ex UK Index4 was up by just 0.3% at Thursday’s close.
And finally …
If you’re the kind of person who’s alarmed by a spider on your staircase or a mouse in your house, spare a thought for Mafi Ahokavo of Melbourne, Australia, who had to deal with an animal intruder with substantially more spring in its step.
After being awakened by a banging noise, Mr Ahokavo discovered that a kangaroo had leaped through a closed window. The injured animal rampaged round the house, causing considerable damage, before managing to lock itself in the bathroom. Animal rescuers eventually managed to sedate it before tending to its wounds.
Although it will doubtless roo the day it took up burglary, the marauding marsupial is expected to make a full recovery.
1The CSI 300 Index is a capitalization-weighted stock market index that tracks the performance of top 300 stocks traded on the Shanghai and Shenzhen stock exchanges. Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses are reflected. You cannot invest directly in an index.
2 The CBOE Volatility Index calculates the expected volatility of the S&P 500 Index over the following 30-day period.
3The FTSE 100 Index tracks the performance of the 100 companies listed on the London Stock Exchange with the highest market capitalization.
4 The FTSE World Europe ex UK Index tracks the performance of large- and mid-cap stocks in the developed and advanced emerging markets in Europe, excluding the UK.
Companies mentioned for illustrative purposes only and should not be taken as a recommendation to buy or sell any security. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list.
Indices are unmanaged and have been provided for comparison purposes only. No Fees or expenses are reflected. You cannot invest directly in an index.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks may be enhanced in emerging markets countries.