President Trump announced, on August 1st, that the first increase on $300 billion of goods and products from China, will take effect on September 1st. Since then we have seen some tariffs delayed, on electronic goods, until December 15th. China has also retaliated, since the U.S. tariff hike, by adding more tariffs on their end. We also have had both sides talk about ongoing low-level calls and a possible meeting in September.
Global markets continue to bounce around, based on whatever news comes out next about the tariffs, as the ongoing global slowdown is creating fragility in many countries. Our stock market has been trading within a sideways range awaiting the latest tweet from the President, or a comment from the Chinese administration.
September will be important month as we see how the market reacts to any further tariff retaliation, by either the U.S. and China, but also it will start to price in a highly expected rate cut by the Federal Reserve. Expectations are that there is a 0.25% (96% probability), but the market is looking a 0.50% cut. We can't project how the market will react to only a 0.25% cut, but we do now how badly things will get if Chairman Powell does nothing. There are indications that we are likely to a total of 0.75%, in cuts, this year. But everything still depends on the trade war. An escalation could put pressure on the Fed to cut more, but a trade deal, will likely have them pause. There is starting to be more dissent on the Fed board as some Fed governors are questioning why we are cutting rates for insurance purposes, as the economy is still showing strength and the stock market is near all-time highs. We tend to be in this camp, as we hate to see the Fed weaken its toolbox that might will be needed if we do see a future crisis.
If you have any questions or comments, please contact me.
Regards,
John Anagnos
Managing Principal
Chief Investment Officer
AETOLIA CAPITAL LLC
3828 Kennett Pike
Suite 212
Greenville, DE 19807
Office: 302-543-4446 Fax: 302-510-4166
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