This year, global stocks have been on an upward trajectory. The gains have been attributed to three main things.
First of all, this year the Federal Reserve has taken a relatively dovish stand and decided that it won’t hike rates. As late as December, the Fed was guiding for three more hikes this year. Since the Fed has ruled out making any more hikes this year, investors have come back to the stock markets. If the Fed had decided to accelerate hikes, the money would have gone to the safe treasuries.
Second, investors have cheered the corporate earnings especially from companies in the US. In the past two earnings season, companies have announced relatively better-than-expected earnings. This is much better than what investors were expecting, especially at a time when the economy is expected to easen.
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Third, investors were glad about the ongoing trade talks between China and the United States. These talks began earlier in the year after the G20 meeting in Argentina. In the past four months, the talks have been going on well, with the US and China negotiators travelling to and fro to make the negotiations. The chances of a deal was pegged at more than 90%. This is until a week ago when the US president decided to change topic.
Global Trade War: Genesi
In a tweet, the president said that the tariffs on Chinese goods worth more than $20 billion would take effect on Thursday night. This led to a sharp decline of global stocks on the entire week. The stocks declined on Friday, after the tariffs took effect.
I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China. You had a great deal, almost completed, & you backed out!
— Donald J. Trump (@realDonaldTrump) 13 maggio 2019
Throughout the week, the US accused the Chinese of reneging on their requests. According to experts, this is because the senior Chinese leaders, including Xi Jinping rejected some of the concessions made by the negotiators.
On Monday this week, the stocks continued to decline after US announced that it would add the tariffs on more Chinese goods worth more than $300 billion. This means that all Chinese goods imported to the US will attract a tariff of 25%.
In response, China announced that it will impose additional tariffs on US goods. In a statement on Monday, China said that US goods worth more than $60 billion will attract tariffs. This is a relatively small scale of tariffs simply because the US does not ship a lot of goods to China.
What will be most affected by this Global Trade War
The first major casualty will be soybeans, which are planted in the US states that Donald Trump won. China imports more than 60% of all soybeans exported by the US. Therefore, this means that the price of soy, which is at historic lows will continue to decline. Other agricultural crops to suffer will be corn, cotton, and wheat.
Second, copper will be affected because it is used in most appliances. Copper is often called the barometer of the world economy (we just talked about Copper’s importance) . Therefore, this means that there will likely be low demand for the metal if the trade war escalates.
Third, global stocks will be affected. In fact, in the past one week, the major indices like Shanghai, Nikkei, Dow, and S&P have declined as shown below.
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However, as a trader, you need to realize that these losses are opportunities for you to make money by shorting assets you believe will fall and buying those you believe will rise.