A Very Brief Reprieve?

by Marty Mazorra CFP®, ChFC® Founder & Co-Chief Investment Officer

Here’s what has the market jumping this morning (Dow futures point to a 200-point surge at the open):

“….the
US ambassador to Germany has proposed lowering
auto tariffs to zero on both sides of the Atlantic. This
would be beneficial to both the US and the EU for a
variety of reasons, and represents a significant
retreat in anti-EU trade rhetoric from the Trump
Administration. The Stoxx 600 Autos & Parts sector is
up 4% as-of this writing, the most since the postBrexit
bounce back in summer 2016.”   Bespoke Investment Group

And, alas, here’s what we’re looking at tomorrow:

“The first wave of U.S. tariffs on $34 billion of Chinese exports will take effect on July 6, according to a statement from the U.S. Trade Representative, which didn’t specify a time. China’s response of additional tariffs on U.S. goods will be effective “immediately” thereafter.” Bloomberg

While the value of targeted goods is light relative to each country’s GDP, quantifying the risk in such terms could be a huge miscalculation:

“The tail risk of a Sino-US trade war is getting fatter,” said Chi Lo, greater China senior economist at BNP Paribas Asset Management in Hong Kong. “The two sides may misjudge each other’s intentions when patriotism takes over rationality, and push themselves into an escalating series of attacks and retaliation.”   Bloomberg

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