“Trade wars are good, and easy to win…” President Donald J. Trump 2 March 2018. “…this will be too hard to get done.” President Donald J. Trump, 23 May 2018.
Prior to becoming president, self-proclaimed dealmaker Donald J. Trump was pretty confident he’d get things done – no problem-o. Repeal “disastrous” Obamacare? “so easy”. Rebuild “crumbling” schools, roads and railways? “by far the easiest to do”. North Korea? We’ll get to that.
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. Indeed, on Monday, US Treasury Secretary Steven Mnuchin stated that “we’re putting the trade war on hold”. Investors went phew and 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 went groan and markets fell.
“Rocket Man” gets the rocket
Not content to leave it there, on Thursday President Trump then called off his much-anticipated summit with North Korea’s Kim Jong-Un, set for 12 June. The reason for the volte-face? Kim’s “tremendous anger and open hostility.” So, not the “big success” we were promised – but then no-one ever said this stuff was easy...
The full Conte
Italy’s current political class know all about negotiation, too. Ever since the general election on 4 March 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 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, are wary. For one thing, the new coalition has promised a €120-billion-a-year spending spree, covering everything from a flat-rate tax and pension reform, to a universal basic income and free nappies (only for babies, we assume). This bonanza will further engorge the country’s already corpulent debt pile (a belt-busting 130% of GDP) and put it squarely at odds with the EU’s strict budgetary rules. The coalition’s policies on immigration (they have pledged to expel half-a-million “irregular immigrants”) and Russia (they want sanctions lifted immediately) are also ruffling feathers in Brussels. And we haven’t even touched on 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/US relations and “dovish” statements from the US Federal Reserve. 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 US 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 thanks to a cocktail of weak 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 US market managed to cling on to its earlier gains, however, ending 0.6% ahead.
Parenting is hard enough at the best of times, so spare a thought for Mark and Christina Rotondo. The US 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 mom & pop’s pad. Still, Michael’s fortunes might soon change: he’s currently suing Best Buy for over $330,000. Why? you ask. They fired him two years ago after he refused to work Saturdays. Go get ‘em, champ.