Monday Musings

With the markets threatening resistance levels on Friday, President Obama came out and bumped some pretty hefty import tariffs on Chinese tyres. China responded in a tit for tat fashion and have started an investigation into chicken and auto part imports.

A couple of things came to my mind when I read this: ok, so Chinese tyre imports are up and have apparently caused the layoff of 7,000 workers. While it’s bad news for these workers, for sure, 7k is a rounding error (on the Nth decimal place) when it comes to the unemployment figures. Is it worth potentially starting a trade war over 7k jobs? I know you can extrapolate it etc but given the tender state of affairs at the moment, it seems like quite a big risk to take to me. If you recall back at the start of Obama’s presidency there were real worries about protectionism from the administration as trade volumes worldwide plunged. Admittedly the world worried a lot more back then than now but that was an issue which really got people talking. And given many believe China is going to lead the world out of this, it probably isn’t the best idea to enter a game of, erm, well, chicken, with them. And also, of the “disruption” caused to the US domestic tyre market the 3-4 years which is under scrutiny here, how much can be attributed to/blamed on Chinese imports and how much due to the most serious recession since WWII?

Anyway, this, along with more equity issuance in the form of Swedbank, Heidelberger Cement and Wienerberger, has weighed on markets today. Interestingly, or oddly, everywhere is down except China.

As equities give back some ground, DXY rallies, oil sells off and the same goes for the commodity currencies. Bonds continue their oddly positive correlation with equities and have sold off to the 3.36 level. It seems we must wait a bit longer for the back to school effect to kick in an volumes to pick up. They are running c80-90% today although futures are tracking higher ahead of expiry on Friday.