Donald Trump backpedalled partially on the Chinese tariffs announced a couple of weeks ago. The Trump administration decided to delay the implementation of the tariffs on more than half of the targeted products from September to December. As expected, equity investors didn’t dither away this opportunity to reload on long equity positions – or to cover their short positions – sending global equities sharply higher in a matter of minutes; thanks to poor summer liquidity conditions. At the end of the day, it doesn’t change anything much as the tariffs should (we remain cautious) be implemented in the coming months anyway.
In our opinion, the decision to spare consumer-focus products (video games, cell phones, toys, laptop computers… etc) is a way to avoid hitting US consumer too badly before the holiday season which could have harmed its popularity ahead of next year US election. In addition, it helped to boost (temporarily) the equity market, as Trump loves to praise stock market gains.
We believe that investors overreacted to yesterday announcement as the tariffs situation didn’t improve. On the contrary, the announcement finalised tariffs on almost all other products that were free of additional tariffs. Therefore, it is reasonable to expect further downside for equities, especially in Europe as economic data continues to come on the soft side.
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