Clouds are mounting around the global economy and it appears no one is safe. What happened? When or will the storm arrive?
Trade War
The trade war heated up last week. It appears that Technology firms in China are the new target. 5 additional firms are facing potential US blacklisting. Although, Tech hardware, software, and electronics were spared in the first 2 rounds of tariffs, they will likely take center stage in the next round. This has brought US based tech firms who utilize China for supplies under price pressure. President Trump is coming under increasing pressure to get a deal done as Manufacturing and services PMI data flirt dangerously with contractionary figures.
Eurozone Weakness
The EU has struggled as of late when it comes to Manufacturing PMI. The latest reading (April) coming in at 44.3. 50 marks the line between Contraction and Expansion. They have been contracting for 5 months now. The German economy has been susceptible to the trade war. While tariffs have not taken hold, the lack of certainty around pricing has impacted demand.
Japan
The one bright spot on the week was the GDP report for Japan. Their economy grew at 2.1% annualized rate. It was expected to grow at just 0.2%. The concern for Japan however has been faltering exports for the last five months as the trade war drags on.
BREXIT
What our weekly Market Thoughts would not be complete without at least mentioning… Brexit. This was actually a big week for Brexit: No, they did not reach a deal (don’t be silly). Due to their inability to reach a deal, Prime Minister May quit her job! That’s right, no deal and now–no leader. She gave her resignation effective June 7th. So begins their political process, which will likely elect someone equally unlikely to get a deal done…
Conclusion
The clouds are mounting! The most concerning are likely the PMI numbers out of the EU and the US. A trade deal would be great, however, that is not predictable. So barring a trade deal, assume action will be taken by central banks this fall; as things are slowing down faster than anticipated.
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