Just when you thought it was safe to go back into the water. Donald Trump happened. Again!
The events of the past week or so just go to show how unpredictable markets and investing can be. Up until late last week, things were looking very rosy indeed. The US markets were just within touching distance of their all-time highs, the UK was performing well and most other major stock markets had posted some impressive numbers also.
Economic fundamentals were looking good. 3/4 or so of the S&P 500 companies had posted results exceeding expectations, the US and UK had some record breaking jobs numbers and the US/China trade deal was about to be signed. What could possibly go wrong?
Well… Our good friend Mr Trump is what can and did go wrong, with his surprise increase in tariffs on many Chinese imports.
There is a consensus that the last round of tariffs, broadly set at 10%, were just about manageable for US importers and that they have absorbed this cost rather than pass it on to their customers. A 25% tariff is a very different matter and this could well lead to higher prices for US consumers, which will do nothing to help future economic growth in the worlds largest economy.
What has been especially surprising is the reaction of both the US and Chinese markets to these developments. When Trump tweeted that he was considering increasing tariffs on Chinese imports, both the US and Chinese markets fell sharply. On the day the tariffs actually took effect however the Chinese market went up by 3%.
How does that work? The threat of the action caused a widespread selloff in stock markets across the world, but the action itself seems to have triggered a rally.
I wish I could come up with some logical and intelligent explanation, but sometimes there simply isn’t one. We just have to admit that over the short term markets are totally unpredictable.
The fact of the matter is that although you may have been thinking that it was safe to go back into the water, you never should have got out in the first place!