Share markets continue to be mixed. US shares were mostly flat last week and negative this week, with strong data offset by worries about a more hawkish US Federal Reserve (Fed) and a potential trade war with China.

The euro main equity benchmark rose 0.7% last week as the European Central Bank (ECB) remained dovish and Italian risks receded, but lost 0.8% this week as trade banter increased. Chinese shares were not helped by soft economic data and potential trade tariffs.

Bond yields generally fell as did prices for oil and metals, but iron ore rose. A mildly hawkish Fed and strong US data at the same time as a dovish ECB and Bank of Japan and softer non-US data saw the US dollar rise to its highest since July last year.

The Trump/Kim summit was a big deal for world peace and while many wanted something definite, there is an agreement to work towards the complete denuclearisation of the Korean peninsula.

There will also be implementation talks and the US will suspend military exercises. This is the best that could have been hoped for from the summit. It gives investors a bit of peace on this issue for some time, at least.

On Italy and the possibility of and exit from the EU worries, there was a bit of relief, with new Italian Finance Minister Tria saying that there has been no discussion of an Itexit, as it is now being called. Budget conflict with the European Commission still lies ahead, but views remain that Italy has no intention of leaving the Euro.

Meanwhile the trade war threat has escalated, with the US first announcing a list of $50 billion of Chinese imports to be subject to a 25% tariff of which $34 billion will be implemented on 6th July and the remainder are still subject to further review.

And as expected, China immediately announced a proposed list of tariffs on $50 billion of imports from the US. Subsequently the US, or better, President Donald Trump, double down indicating the intention of a further $200 million worth of Chinese goods to be identified for additional tariffs.

This should be of no surprise, as it’s what Trump’s statement on 29th May said the US would do by 15th June, it’s still just another list that has yet to be implemented and if implemented it would cover less than 2% of imports to the US. It would still be a long way from the Smoot-Hawley 20% tariffs on all imports that helped make the Great Depression “great”.

Trump also sees these announcements as a way of pressuring China into action on trade so more classic Art of the Deal stuff – with US Trade Representative Lighthizer hoping “that this leads to further negotiations” and with the 6th July start date for some of the tariffs still leaving three weeks to do so.

Unfortunately for the US, China, the EU, Canada and Mexico are no small-time business wannabees but hardened negotiators who do not take lightly to unilateral decisions.

Ultimately a negotiated solution is most likely and this is what all sides want – but the risks of further escalation are high and the tariffs could well be implemented before the issue is resolved.

Sources (FinSec, Bloomberg, CNBC)

Disclaimer: This article was issued by Antoine Briffa, investment manager at Calamatta Cuschieri. For more information visit, The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.

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