11 Apr 2018
April 11, 2018

Market Commentary for 4-9-18

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2018-04-09 Market Commentary from Stuart Cahill on Vimeo.

The roller coaster ride of the major markets continued last week as the S&P 500 fell again. After opening over 2 percent lower on Monday, the market experienced 3 consecutive days of gains only to be followed by one last day with another loss over 2%.
Talk of Tariffs dominated the news last week. China released new tariffs on US Foods imports which included pork, nuts, wine and fruits among other things. These duties span between 15% and 25%.

The full list of 128 US products targeted by China’s retaliatory tariffs


In turn, on Tuesday the Trump Administration released a list of approximately 1,300 Chinese exports that would be receiving a 25% tariff.
https://ustr.gov/sites/default/files/files/Press/Releases/301FRN.pdf
China in turn reacted with an additional list of tariffs on Wednesday. One import item on the second list that particularly caught analysts’ attention was Soybeans. Soybeans is considered a key ingredient in the feed for animals and as the Washington Post reports, China bought roughly half of U.S. exports of the commodity in 2017.
Many viewed this as a direct attack on Trump voters who live in areas that produce the bulk of the Soybeans in the united states.
https://www.nass.usda.gov/Charts_and_Maps/Crops_County/sb-pr.php

2016 US Presidential Election Map By County & Vote Share

https://www.washingtonpost.com/world/asia_pacific/china-fires-back-at-trump-with-tariffs-on-106-us-products-including-soybeans-cars/2018/04/04/338134f4-37d8-11e8-b57c-9445cc4dfa5e_story.html?noredirect=on&utm_term=.7a24c8042009
Furthermore, the move to place fees on Soybean imports is particularly important as it represents a significant symbolic move. The 58 million metric tons of Soybeans that were exported to China last year cannot be easily replaced by other countries and will likely negatively impact China’s own agricultural market.
In short, China appears to be cutting off their nose to spite their face.
Reuters reported that this action is already causing ripples to the flow of the agricultural market as other countries are beginning to see their prices of Soybeans increase.
https://www.reuters.com/article/us-usa-trade-china-soybeans-explainer/china-deploys-soybeans-in-trade-war-but-may-hit-own-foot-idUSKCN1HB11V

Surprisingly, the S&P GSCI Soybeans index ended the week down only 1% at the close of the week. Despite the renewed attention to the commodity.
While the headlines appear concerning, Treasury Secretary Steven Mnuchin tipped his hand on Friday to show that this issue is really about positioning for future negotiations. While he did say that “We’ll continue to have discussions. But there is the potential of a trade war…”
He followed up saying “We absolutely are willing to negotiate and not get into trade wars,” and that “The good news is, President Xi [Jinping] and President Trump have a very good relationship…” and that “There is clear understanding that we have mutual interest in reducing the trade deficit, something that China has agreed with us.”
http://thehill.com/policy/finance/382034-mnuchin-says-us-willing-to-negotiate-with-china-to-avoid-a-trade-war