On Top Of The World

On Top Of The World

over 4 years ago3 mins

Mentioned in story

The G20 gathering of the world’s most influential leaders is underway – but it’s a meeting on the margins which has the potential to really make or break markets for the rest of the year.

🕰️ Recap

  • In April, China reported that its economy grew faster than expected in the first quarter of 2019, despite a year of trading blows with the US

  • The US imposed new tariffs on China in May and threatened even more to follow

  • In addition to counter-tariffs, data this month suggested China was selling some of its US government bond holdings, potentially increasing America’s borrowing costs

  • Other investors’ recent bond buying, meanwhile, suggests they aren’t too optimistic that the US and China will reach a trade agreement soon

🔗 Connecting the dots

You’d be forgiven for thinking that the congregation of the leaders of the world’s twenty largest economies in Osaka, Japan was only notable as an opportunity to get the US and Chinese presidents in the same room. And in a way, you’d be right: while the official agenda includes topics like sustainability, digitization, and aging populations, the cozy confab planned between the two bigwigs is arguably more important to investors. Like some nightmarishly grueling Wimbledon tiebreak, China and America have been batting tariffs and counter-tariffs back and forth for over a year – and the hope is that the Nippon rendezvous may mark an amicable match point in proceedings.

After months of frustrated negotiations, it's unlikely that a complete deal will be served up on the back of a single meeting. Investors have been buying up government bonds over stocks, appearing to brace for no (or negative) news. Even a joint statement of intent would likely cause stock prices to jump to even greater record highs – especially if some current tariffs were lowered or removed, thereby boosting demand for goods and economic growth in both countries.

No new balls in either side’s court isn’t necessarily bad news, however. Even if the US and China play a let and continue along their current trade tramlines, stocks could still rise thanks to the economy-encouraging interest rate cuts predicted later this year in both the US and the eurozone.

🥡 Takeaways

Even if you're not currently a direct investor (you probably will be indirectly through your pension), what happens between the US and China will still impact your personal finances by affecting the prices you pay for products. Tariffs increase costs for companies buying overseas goods, and they’ll probably lob some of that in your direction by way of higher prices rather than take a full forehand smash to their profits. As-yet unaffected firms like Apple may soon be hit by future tariffs, making new iPhones even pricier and likely resulting in fewer sales as consumers opt for cheaper alternatives.

New US sanctions on Iran in response to the country shooting down an American drone allegedly in its airspace have escalated existing trade tensions between the countries. One effect of this has been a rise in the price of a barrel of oil: as an oil exporter, restrictions on other countries’ access to Iran’s supply has made the black gold more scarce and therefore more valuable. Still, that could be ace news for the US’s own oil producers...

🎯 Also on our radar

Brits have been living champagne-and-strawberry lifestyles with lemonade money for the tenth quarter in a row, according to official UK data out on Friday. Partly thanks to a reduction in the amounts households are saving, people in the UK have continued to spend more than they earn for the longest period since records began. Saving certainly doesn’t look attractive when interest rates are as low as they are at present; but while the sun’s shining, it’s important to set something aside for a rainy day. Now – anyone for tennis?

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