A major stress test for the recovery scenario - Dorval Macro Corner (may 2019)

"Adapting economic knowledge to market realities and breaking free from the tyranny of indices"
François-Xavier Chauchat
Member of the Investment Committee. Macroeconomic framework and asset allocation.

The shocking increase of US tariffs from 10% to 25% on $200bn of Chinese imports, and the threat of an extension of tariffs to all imports from China, have logically rocked financial markets. Expected to be signed before summer, the US/China trade deal now seems hard to swallow for both China and the US.

China is worried about the interference of an excessively binding deal on its sovereignty. Inversely, the US administration fears that a soft deal could be seen by the electorate as a sign of weakness towards China. The bad news is that retaliation by China on $60bn of US imports and the possible extension of the US tariffs to hundreds of billions of consumer goods, including many US products made in China, may hurt large parts of Corporate America. Moreover, the US administration could still extend the trade war to the EU, and in particular to German cars. Clearly, recent trade news reduce the odds of a recovery in the global industrial cycle, after already 16 months of downturn.

Download Dorval’s Macro Corner of May 2019 in PDF version here


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