Global markets: Five events to watch this week

Weekly Market Compass: Tracking elections in Europe and India, and several reports in the US

Time to read: 5 min

It seems that so much happens in a given week these days. However, this week could be particularly momentous as we start to get answers on some key questions that have implications for global markets. Here are five events to watch:


Talking tariffs: New tolls threaten to further strain US-China relations

Weekly Market Compass: Consumer spending could suffer as companies try to pass on price increases

Time to read: 4 min

Last week took investors on a roller coaster ride. The climax came at the stroke of midnight on Friday, May 10, when US President Donald Trump’s newest tariffs went into effect — a 25% toll on $200 billion of Chinese goods. Then later on Friday, the negotiations ended with no material progress, and there are no formal plans to resume talks.  What’s more, China retaliated the morning of May 13 by announcing tariffs on US goods being imported to China.

As regular readers of this blog may recall, I have always been quite pessimistic on the possibility of the US achieving a meaningful trade agreement with China. I have worried about the negative impact of tariffs and the potential that China can retaliate against the US in a meaningful way. In addition, I have always believed there is a misguided concern by the US over trade deficits. Free trade has historically produced lower prices by enabling companies and consumers to purchase from the lowest-cost provider — cheaper imports from China have lowered US consumer price levels by 1% to 1.5% in aggregate.1 That is meaningful for lower and middle income Americans. For a typical US household earning about $56,500 in 2015, trade with China saved families up to $850 that year.1 Conversely, the imposition of tariffs and other forms of protectionism will only serve to drive up prices, in my view. Tariffs can create inflation — not by stimulating demand, but by simply increasing the cost of goods.


US-China trade talks stumble, and stocks tumble

Weekly Market Compass: Threats of fresh tariffs on Chinese goods suggest short-term volatility

Time to read: 4 min

US-China trade talks have taken a turn for the worse in the last several days and may temporarily go off the rails.

It all started when President Trump threatened to increase the level of tariffs on $200 billion of Chinese goods to 25% by May 10, asserting that China is taking too long in the negotiations and is attempting to “renegotiate.” He also threatened to place 25% tariffs on additional goods. Now China, in response, is threatening to cancel trade negotiations planned for this week between the US and China.


Looking for clues on growth

The view of future growth remains blurry for the world — including the US, China and Europe

Time to read: 4 min

In the past several months, we have seen central banks make an abrupt turn toward a more dovish monetary policy stance. The initial assumption by markets was that this was a decisive turn. However, more recent communications suggest otherwise. As doubts about economic growth continue to grow, so does uncertainty about the path of policy.

Will the Fed raise rates — or cut them?


Can central banks still be effective?

Weekly Market Compass: Also, six global issues to watch this week

Time to read: 6 min

Last week was a momentous one for central banks — the minutes from the March Federal Open Market Committee (FOMC) meeting were released, giving us insight into the Federal Reserve’s views on the global economy and rate cuts, and the European Central Bank (ECB) decided to remain on its ultra-accommodative path. We were reminded that central banks are critical for supporting growth, controlling inflation and stabilizing economies — a task that is growing increasingly difficult as these institutions become more politicized.