18 to 24 June: Getting Serious

In Washington, President Trump upped the ante on trade last week. Currently, USD 50bn of Chinese imports will become subject to 25% tariffs from the 6th July. However, if the EU and China do not reverse their retaliatory actions, the POTUS has now threatened further levies on China of up to USD 400bn and measures specifically targeting non-US automakers of up to USD 360bn. In total such tariffs would amount to 4.1% of US GDP. Therefore, considering also the responses of the US’s trade partners, it is fair to say the global trade war just got serious. We would expect Trump’s counterparts to make efforts to de-escalate the situation, but with Donald involved there is certainly now a genuine tail risk for the market.
Elsewhere, OPEC agreed to boost production to make up for production shortfalls in Venezuela and Iran. The exact increase in output is not clear, as some members may not be able to meet targets, but should be in the region of 600k-1m barrels per day. Oil prices rose in response.

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