6.07 - American tariffs shake up the markets
With American tariffs imposed, markets display weird reaction.
We really hoped that Trump wouldn’t go further than simply stating the new tariffs, but it seems that Donald is ready to go through with every move in order to suppress Chinese economy and bring jobs back to the USA even though no one asked him for that. Today we can't help but think about the effect that the whole situation will cause for the rest of the world.
What is a trade war in the first place? It is when two or more countries are trying to make trading as difficult as possible for one another. And when the countries are as big and important as China and the USA the world is being shaken. We can take an example as close to us all as can possibly be – are you holding an iPhone in your hands? Well, if you are, it was merely developed in the USA. It was produced in china using Japanese and South Korean details. As a result, Chinese import tariffs will hit all of the courtiers and manufacturers involved.
And that was only one example with one manufacturer and one product. Imagine that on a world scale – clothes, home appliances, computers, toys for the kids and even small stuff like cosmetics and pens – everything comes from China these days. Everything is produced there using foreign details. We for once have a hard time trying to imagine the impact that this is going to have in the long run. And the spheres of our everyday lives that it can affect.
Although the effect it causes on the world markets is peculiar. It seems that instead of putting all of the hopes in America, traders and investors prefer to deal with Asia and Europe right now. Is it possible that Trump damaged the economy more than did it good? After all we have spoken several times about the instability of Trump and how sooner or later traders are going to turn away from the country with such a policy and it seems that right now is the time to see that happen. If the tendency continues unchanged, American economy will go on sinking. After all, dollar is already on the lowest point in about a month.
With all of the nerves that the trade escalation is causing us there are some assets that we can easily forget about in this panic. Like oil. Oil prices around the world fell, feeling the pressure from the trade war, escalating between the US and China. Today and yesterday prices all around the world are uncertain of their movements, changing between falling and gaining. The worst part is that some of the brands of oil are going to be on the see-saw until the summit between Trump and Putin which is to take place on July 16.
Right now, oil is not something to mess with. Prices for it have a lot of things tied to them. And between tensions between East and West a rapid drop in oil prices is the last thing we need. Precious metals have been falling virtually with no recovery for at least a week and a half and we are not even going to go into talking about dollar because we all know - the greenback is having tough times.
The main threat for the oil trade right now is the Chinese answer to the United States. China claimed that they will impose tariffs on 545 American goods, including oil import. And according to the numbers, America ships 400.000 barrels per day to China. Tariffs for that amount are going to hurt American economy bad. Moreover, oil will become uncompetitive in China. And virtually all of the markets are occupied by other suppliers and demand for oil isn't really growing right now.
So, one more thought is confirmed – the more there is uncertainty in the situation, the more commodities don’t like it.
One of the biggest smartphone retailer is not having the best time right now. We honestly thought that after the Chinese tariffs would kick off shares of this Korean producer would skyrocket. Think about it – neighboring country is having a lot of problems in trading relations with the biggest economy in the world. With the amount of production plants inside South Korea it was likely that some of the companies would turn to Korea and make it a production hub. But we see an opposite thing happening.
Although we are not talking about capital being pulled out of Samsung (yet) the sales of the company are not as satisfying as we would hope them to be. For the first time in decade, sales are plunging and demand for the smartphones is going down. Although that is not the only field that Samsung is working in, it is the most profitable one. Producing memory chip in also a good deal but the demand for them is not as spread.
With such estimates, shares of Samsung are not withstanding the pressure. They fell by 2 percent this morning. That brought shares of the company to 11 percent loss since the beginning of the year. There is no time for the company to wait for Chinese phone producers to go out of the game, given that it might take decades or not even happen at all. But the red flags are there not only for Samsung but for the entire industry. The world has had enough of the smartphones. Apple launch a new model of their iconic phone every year and every next model's sales are not reaching the estimates. The same can be said about Samsung and Huawei.
With American-Chinese trade war going round and round, there is a lot of fears of the next financial crisis. And people don’t really buy new phones when there is a crisis, so the sales can do down even lower and we all know the law – the lower sales, the cheaper are the shares.
- by Anna K.