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Thoughts for the month ahead: Yipes! President Trump shocked the markets on May 10th by doubling down on tariffs against all Chinese imports. Last Friday, he again shocked everyone by threatening 5% tariffs, starting June 10th, on all imports from Mexico if it doesn’t stem the tide of immigrants. That dashed any hope markets might have had for a phase down of mutually assured destruction. I haven’t given up hope that some way out could be found when Trump and Xi meet at the G-20 meeting in Osaka, Japan on June 28th-29th. The markets are anxiously awaiting the 8:30a.m. June 27th first preliminary Q2 U.S. Real GDP estimate, telling us how much growth has slowed down from the unexpectedly hot 3.1% Q1 figure. Private forecasters are bunched around 2%, but the Atlanta Fed is estimating 1.2%, low enough to revive recession fears.

China Trade Agreement: Talks are at a standstill as tariff retaliation escalates. China stopped all purchases of U.S. soybeans last week, and it is readying a range of other weapons, e.g. withholding rare earths, investigating FedEx, etc. Then yesterday, China’s Vice Commerce Secretary Wang Shouwen told reporters, “We’re willing to adopt a cooperative approach to find a solution.” That’s a start, but U.S. demands that China change its laws on intellectual property protection, stop subsidizing its export industries, and reduce its trade deficit seem unlikely to be met.

USMCA: Many hoped that the U.S.-Mexico-Canada Agreement might be on a path to ratification by now, but those hopes were dashed last Friday when President Trump decided, over the advice of several advisers, that he would impose 5% tariffs, starting on June 10th, on all imports from Mexico if it failed to staunch the flood of immigrants. Several Republican senators immediately decried the move, without any discernible effect; all of the Democrats condemned the threat. 

Political Insider

About Pete Davis

Pete Davis

Pete Davis advises Wall Street money managers on Washington, DC policy developments that affect the financial markets. Visit his website here daviscapitalinvestmentideas.yolasite.com.

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