Global Geopolitical Series: Market underpricing possibility of bitter trade feud

We at FxWirePro believe that the financial markets are heavily underpricing the risk of a bitter trade feud between the United States and major exporters to the United States. Last week’s meeting between the G7 countries (Germany, France, Italy, Japan, Canada, United Kingdom, and the United States), which ended in total disarray with an ugly display of disagreements and dishonesty, https://www.econotimes.com/Global-Geopolitical-Series-G7-meeting-ends-in-ugly-disarray-1360226 ,at least point to that direction.

Actions taken up by the countries are also suggesting that the world is heading towards a trade war.

President Trump has slapped heft tariffs of 25 percent and 10 percent on all steel and aluminum imports to the United States. China temporarily imposed tariffs on U.S. agricultural products to the tune of 178 percent before the duo engaged in talks again. The European Union has also announced tit for tat tariffs on U.S. imports worth €2.4 billion, which will be live from July. Mexico has announced tariffs on several U.S. imports such as pork and cheese.

However, the financial markets don’t seem worried about it as it continues to price no major economic changes. One reason is that trade tensions do not get reflected in the hard data clearly and it could be few years if not months it exerts major signs of damage. But once the signs appear, there would be no turning back and, as of now, there is no sign to suggest that there won’t be further fictions on trade between world’s largest economies. After this week’s worst ever G7 meeting,

• United Kingdom’s FTSE100 is up 0.65 percent and trading at 7730 area, close to its all-time high.
• German DAX is up 0.35 percent, and trading at 12810 area, just 6 percent below its all-time peak.
• Japanese Nikkei is up 0.5 percent and closed at 22800 area.
• U.S. S&P future is up 0.10 percent.
• French stock index is up 0.20 percent.

In none of the G7 countries, the stock market showed or showing much concern about the trade feud that has been gradually escalating. We at FxWirePro believe that stock investors are undermining the major shift in policies. A major correction and readjustments to price are becoming due.