Daily Management Review

US-China trade conflict starts affecting other countries


Negative consequences of the confrontation between the two largest economies began to affect the markets and companies around the world.

Corporate investments in Japan decreased in Q1 by 1.2%, and private consumption - by 0.3% on an annualized basis, although GDP still grew by 2.1%, the statistical office reported on Monday. Despite problems in the export and manufacturing sectors, the fall in capital investment has now turned out to be not as significant as expected, so we can see deterioration in the future, says Mari Iwashita, an economist at Daiwa Securities. "The mood in Japanese companies, especially manufacturing, as well as among consumers, is becoming more cautious because of the slowdown in foreign economies, especially Chinese," a government spokesman told to The Wall Street Journal.

The operating profit of Panasonic, which has factories in China, could have been $ 365 million more in the first quarter, if it had not been for the trade dispute, said CFO Hirokazu Umeda recently. “And we cannot fully appreciate the impact it will have on us through our customers,” he added.

The confrontation between the USA and China has been going on for more than a year, but more recently it seemed that they were close to concluding a trade agreement. However, a week and a half ago, Washington unexpectedly raised from $ 10 billion to $ 10.5 billion from 10 to 25% of import duties on goods and $ 60 billion from Beijing.

Expectations of problems in China began to affect currencies of the countries for which it is a major importer. About a quarter of South Korea’s exports go to China, and the Won rate dropped to its lowest level in more than two years.

The Australian dollar for the year fell by 10% to almost the lows of 2009 on fears that US duties would hit the economy of China, where Australia directs a quarter of its exports. These are, in particular, commodities, prices for which are largely shaped by Chinese demand.

About a quarter of silver demand comes from electronics manufacturers, and the United States and China are among the largest consumers of metal for industrial use, Carsten Menke from Julius Baer Bank indicates. But the United States last week banned American companies from using Huawei products (a Chinese company is one of the largest manufacturers of telecommunications equipment in the world) and selling components to it.

Since the end of February, silver prices fell by more than 10%, falling on Friday below $ 14.5 per troy ounce.

According to BMW Chief Financial Officer Nicholas Peters, the damage from the trade conflict for the company exceeded $ 100 million in the second half of 2018, and the increase in fees could cause about the same damage. 

Problems are felt in the countries of conflict themselves. Their stock markets have grown strongly in the first four months on expectations of a trade agreement, as well as thanks to the steady growth of their economies. But although the profits of American companies in Q1 were higher than expected (the consensus forecast for growth in earnings per share was 2.5% compared to the same period a year earlier, whereas before the quarterly reports were published it was -4%, says Julius Baer) , optimism did not outweigh caution. Investments in 356 S&P 500 companies that disclosed information increased by only 3% compared to Q1 2018, when growth was 20.5% (at least last year was in IV quarter - an increase of 12%).

source: ft.com, wsj.com