Latest news with #SignumGlobalAdvisors
Business Mayor
13-05-2025
- Business
- Business Mayor
De-escalation and the damage done
This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newsletters Good morning. The ceasefire between India and Pakistan, which looked shaky over the weekend, appears to be holding. Equities in both countries rallied: India's Nifty 50 index by just under 4 per cent, and Pakistan's Karachi Stock Exchange 100 by 9 per cent, in US dollar terms. Let's hope markets are right to be optimistic. Email us: and Taco Monday: a big relief, but The pattern is now unmistakable. Trump announces extreme tariff policies but in the face of a negative political, economic or market response, he backs off. The Taco (for Trump Always Chickens Out) trade notched up its latest win yesterday, after Trump announced that he would cut tariffs on China from 145 per cent to 30 per cent for 90 days, ending what had amounted to an embargo on many Chinese goods (a significant number of products, such as electronics, had already received exemptions). China, for its part, cut its tariffs from 125 per cent to 10 per cent. Markets roared their approval. Yes, a 30 per cent tariff is still high and 90 days is not forever. But the central forecast now has to be that, should 30 per cent tariffs pinch in the US, Trump will bring those down, too. What reason has the administration given for investors to expect anything else? Trump observers love to note that the president has been rambling on about protectionism for 40 years now. But talk is cheap. Judge the man by his actions. Trump's habit of concession is unambiguously good news. But the trade war is not over, and it is worth articulating the risks that remain. Read More Five-year gilt yields drop below 7%, hit 7-month low Most obviously, while we can observe Trump's behaviour, we can't read his mind. While it seems less likely all the time, there may be some territory he will refuse to concede, even under pressure. Andrew Bishop, head of policy research at Signum Global Advisors, agrees that Trump almost always backs off. But he points out that there is something of an escalating, two-steps-forward, one-step-back pattern in his actions. On January 20, Trump proposed tariffs on Canada, Mexico and China, and then did nothing whatsoever about it. In February he threatened those countries again, and actually signed an order, but didn't implement it. In March, he announced, signed and implemented tariffs on Canada and Mexico — then backed down immediately. On 'liberation day', he announced, signed and implemented high tariffs on the world — and then took a month to back off. So there is a sort of advancing pattern amid all the retreats. The Taco view of this pattern is that Trump is feeling around for a position that changes other countries' behaviour significantly without causing significant consumer or market pain in the US. Because there is no such position, the final equilibrium state will be a quite moderate tariff regime. But even hardcore Taco believers like Unhedged have to concede that other outcomes, while unlikely, are possible. Trump is not especially easy to predict. For the time being, tariffs at their current levels are high enough to have a significant impact on corporate profits, and the stock market is still not pricing that in. Joseph Wang, an independent analyst, wrote yesterday that In theory, the impact on tariffs can be blunted by a strengthening currency and substitution towards non-tariffed countries. However, the dollar has been weakening and a global minimum tariff makes substitution less likely as it impacts all imports regardless of origin . . . A very rough estimate based on recent goods import volumes of $3tn suggests that the incremental increase in tariff revenue would easily be over $200bn A $200bn tax increase could carve 4 per cent or 5 per cent out of US corporate profits, and yet earnings estimates and valuations remain elevated. Read More China clears path for foreign investors to $5tn swaps market Foreign investors, meanwhile, may look at the volatility in US policy and asset prices and change their behaviour in significant ways, even after the latest climbdown. Regulated global investors like pension funds and insurance companies will be forced by their risk rules — grounded in backward-facing volatility measures — to reduce their dollar exposure or hedge it more (this helps explain the continued weakness of the dollar index). And many investors may think about diversifying outside of the US, especially given that American assets are so expensive to begin with. For example, Jim Caron, chief investment officer for the Portfolio Solutions Group at Morgan Stanley Investment Management, is looking to regional diversification, and his team's highest conviction overweight is European equities. Also, the China reprieve might not do very much to the fact that inflation risks remain, which means that hedging volatile US equities with long Treasuries might not work. Here's Caron: From a portfolio perspective [higher inflation] means that longer duration fixed income may not be as good of a hedge as in prior cycles. So, I prefer to be underweight duration, holding higher quality shorter duration bonds, because in the event something bad happens, the mechanism for the Fed to cut rates will be deployed. Conversely, if we get positive news, well, that's inflationary too, [so the] back end underperforms. Effectively, we have to understand that longer duration bonds are not the hedge they used to be. The economic scars from back-and-forth US policymaking may be significant and lasting, too. As Bishop points out, policymakers and corporate managers may not take much comfort from the fact that Trump chickens out almost every time. 'You are playing Russian roulette,' he says. 'Yes, [Trump] backs down nine times out of 10, but if you hit the wrong chamber, you blow up your economy' or your company. Investors, politicians and companies still have to take defensive measures when dealing with the US, and defensive measures create economic friction. For example, supply chains will not function as smoothly, as Grace Zwemmer, economist at Oxford Economics, explains: The 90-day pause will probably spur another round of frontloading by importers trying to avoid heavy tariffs [later] . . . A rebound in imports from China would reduce the risks of a supply chain disruption . . . However, it is likely to keep uncertainty around tariff rates high. Future tariff announcements could lead to sharper declines in imports and a bigger risk of supply chain disruptions in anticipation that relief will be forthcoming. Finally, the China de-escalation may not be enough to free the Fed to cut rates. The Fed is looking at firm employment data, inflation a bit above target, and significant tariff uncertainty. Trump has taken the worst-case scenario off the table for three months, but the Fed needs more clarity than that, given the data it has. Several Wall Street economists came out yesterday and reaffirmed their view that the Fed is unlikely to cut this year. Unhedged tends to agree with them. One good read Whipping Post. Can't get enough of Unhedged? Listen to our new podcast, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here. Due Diligence — Top stories from the world of corporate finance. Sign up here Free Lunch — Your guide to the global economic policy debate. Sign up here
South China Morning Post
04-03-2025
- Business
- South China Morning Post
Stock markets tumble globally as new Trump tariffs hit China, Canada and Mexico
Stock markets worldwide fell sharply on Tuesday after US President Donald Trump threatened to take a sledgehammer to the global economy, sparking fears of a global trade war following his imposition of a blanket 25 per cent levy on all Canadian and Mexican imports and an additional 10 per cent on Chinese goods. Advertisement Pressured by their respective companies and a desire not to look weak domestically, America's three biggest trading partners teed up retaliatory tariffs. The three account for some 42 per cent of all imports into the US, the world's largest economy. As the world woke up to the fact this was actually happening, analysts sought to assess how long the tariffs were likely to last, with China's expected to be more 'sticky' and less easily rolled back – seen in Trump's decision to levy lower levels on China. 'He intends on keeping the China tariffs on for the long term, which means he needs to proceed in such a way that they are seen as manageable, not least from a market perspective,' said Andrew Bishop of consultancy firm Signum Global Advisors. 'Whereas we have high conviction he'll be repealing the blanket North American tariffs in short order,' he added. The three countries quickly signalled their resolve to fight back.
