Trump says Dow would be way higher without trade war


Stocks advance as a broad easing of risks across the globe give investors a reprieve
Chief Investment Office05 Sep 2019
Photo credit: AFP Photo


US

US President Donald Trump said his trade war with China has hurt the performance of the US stock market, but that he had to confront the country’s economic practices.

The Dow Jones Industrial Average stood at 26,332 as of about 1:00 pm in Washington, up less than 1% for the day. Trump increased tariffs on Chinese imports this week (ending 6 September) to try to elbow Beijing into resuming talks on a far-reaching trade deal.

Trump has placed tariffs on some USD360b of Chinese imports since the start of the trade war more than a year ago. On Sunday (1 September), he enacted a 15% duty on about USD112b of Chinese products, mostly electronics and other consumer items.

An existing 25% tax on about USD250b of goods is set to rise to 30% on 1 October. A separate batch of about USD160b in Chinese goods, including laptops and mobile phones, will be hit with 15% tariffs on 15 December – meaning that virtually every Chinese import will have a tariff levied on it.

Trump has previously said the Dow would be 10,000 points higher if the US Federal Reserve had not raised interest rates last year. Trump routinely criticises Fed Chairman Jerome Powell.

Meanwhile, stocks advanced as a broad easing of risks across the globe gave investors a reprieve. The S&P 500 Index rebounded from Tuesday’s losses, while Treasuries were mixed. Technology shares, which led the decline that was the first in four sessions, paced the advance. The 10-year Treasury yield traded around 1.45%. Bloomberg News.

On Wednesday (4 September), the Dow Jones Industrial Average rebounded 0.91% to 26,355.47, the Nasdaq Composite Index gained 1.30% to 7,976.88, and the S&P 500 Index added 1.08% to 2,937.78.


EUROPE

Poland’s government played down the risk of a European court ruling that looms over its banking industry and made clear it was not about to help lenders who doled out mortgages in foreign currencies.

Rating agency, Standard & Poor’s Global (S&P) sounded more concerned, warning that some banks with exposure to such loans may suffer losses as a result of mounting lawsuits, forcing them to shore up depleted capital buffers and hedge currency positions. All of this could weaken lending along with the outlook for the country’s USD586b economy, S&P said.

While investors have for months ditched Polish bank stocks due to mounting legal risks, Development Minister Jerzy Kwiecinski said on Wednesday (4 September) that lenders should not expect the government to help them cope with potentially spiralling costs and reprimanded them for amassing USD32b in non-zloty loans, mostly in Swiss francs.

The foreign loan portfolio is putting the government in a tight spot ahead of a general election on 13 October. The cabinet seeks to bolster its credentials as the creator of Poland’s “economic miracle”, combining fast expansion, generous welfare spending, and budget discipline, which a bank blowout could erode.

The European Union’s top court is due to decide this year about potentially abusive clauses in foreign-currency loan agreements. Banks with hefty non-zloty loan portfolios have lost more than a quarter of their market value since June amid concerns that the ruling could trigger more litigation in Polish courts, forcing write-downs. The Polish Bank Association estimated the costs of a negative verdict at PLN60b (USD15.2b), or about four years of the industry’s total profit. – Bloomberg News.

The Stoxx Europe 600 Index traded 0.89% higher to 383.18 on Wednesday.

 

JAPAN

When Aiful Corporation sold Japan’s first-ever junk bond to the public earlier this year, it offered a small ray of hope to yield-starved investors in yen assets.

The consumer lender’s issuance met the wishes of pension funds and life insurers, with more than USD7.2t under management, for whom a high-yield bond market in Japan would ease the pain of more than three years of negative interest rates. With benchmark yields now tumbling toward a record low, the quest for returns is growing ever more urgent.

Those hopes have effectively been crushed by another group of yield-hungry institutions: Japanese banks. Awash with a near-record JPY256t (USD2.4t) in excess deposits and desperate for even a sliver of margin, Japan’s 100-plus commercial lenders are more than willing to lend at rock-bottom rates to any business considering a junk bond.

Bad-loan costs at regional banks exceeded JPY300b for the first time in eight years last fiscal year. Local lenders’ loans to firms with “relatively low creditworthiness” no longer offer adequate returns, said in an April report. The average rate on new domestic loans sank to a record-low 0.577% in May, central bank figures show. An index of banks’ willingness to lend to small enterprises is near the highest since Japan’s debt fuelled asset price bubble of the late 1980s. – Bloomberg News.

The Nikkei 225 Index increased 0.78% to 20,810.32 early-Thursday (5 September) morning. It gained 0.12% to 20,649.14 in the previous session.


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