Policy Updates: Markets Steady but Major U.S./China Trade Issues Linger

Posted on 08/06/2019 6:08 AM

Four living former Fed chairs write op-ed item in Wall Street Journal

U.S. and world markets are steady after Monday’s plunge, as traders reassess the escalating U.S./China trade war and China’s currency move. Traders appear to be less anxious after the People's Bank of China took steps to stabilize the yuan, setting the currency's reference point higher than the key 7 per dollar level. The intensifying U.S./China trade war still pushed the Shanghai Composite down 1.6% overnight as Beijing confirmed its suspension of U.S. agricultural product purchases in response to new American tariffs.
Goldman Sachs sees no trade deal before 2020 U.S. election and is now expects three rate cuts. "In light of growing trade policy risks, market expectations for much deeper rate cuts, and an increase in global risk related to the possibility of a no-deal Brexit.” Other observers in essence said no one can predict Trump and whether or not there will be a trade agreement with China before 2020 elections.
In a strongly-worded editorial, the official Communist Party newspaper the People's Daily said the United States was "deliberately destroying international order" and holding its own citizens to ransom.
Businesses tied to global trade are bracing for a possible further escalation of the U.S./China conflict, the Wall Street Journal reports. Recent market anxiety highlights the growing concerns for companies that are still redrawing supply chains to respond to tariffs imposed over the past year, the article notes. That is already triggering an exodus of manufacturing from China to other countries. “The new conflict suggests there's no trade accord on the horizon and that still deeper and long-lasting changes to global supply chains are coming,” the item concludes.
     The four living former Federal Reserve chairs have banded together to emphasize the importance of a Fed chair who's "permitted to act independently and in the best interests of the economy, free of short-term political pressures and, in particular, without the threat of removal or demotion.” Even the perception that monetary-policy decisions are politically motivated "can undermine public confidence that the central bank is acting in the best interest of the economy," wrote Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen. "This can lead to worse economic performance in the long run, including higher inflation and slower growth." Link to Op-Ed piece in the WSJ.
Brent crude remained near seven-month lows around $60 a barrel due to escalating trade tensions. Brent prices have lost more than 9% in the past week, with Trump vowing to impose new tariffs on Chinese imports, and China making further moves against U.S. agricultural cargoes.
Britain is joining the U.S. in forming an international mission to protect shipping through the Strait of Hormuz from Iranian threats after struggling to build a European maritime coalition to safeguard ships in the region. The U.K. said details of the cooperation had yet to be completed, but that it had offered to lead one of the mission's maritime task groups. A third of the world's seaborne oil is transported through the strait.
You think you have problems… Jeff Bezos' net worth plunged by $3.4 billion in Monday's stock rout — and the rest of the world's super rich lost $117 billion.    



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