Money Advice

A trade war truce is reached (for now)

Posted by The Simply Money Advisors Team on Dec 3, 2018 1:32:22 PM

A trade war truce was declared over the weekend after President Trump and Chinese President Xi dined at the G-20 meeting in Argentina.

President Trump agreed not to increase the tariff rate (tax) from 10% to 25% on $200 billion of Chinese imports on January 1, 2019, as was previously scheduled. However, if a trade agreement between the U.S. and China can’t be reached in 90 days, the tariff rate will increase to 25%.

China has agreed to buy a yet-to-be-determined but “substantial amount of agricultural, energy, industrial, and other products” to reduce the trade gap between the two countries, which was $403 billion over the past 12 months. Also, both China and the U.S. agreed to start negotiations regarding intellectual property protection, including forced technology transfers from U.S. companies when they do business in China.

Last week, markets cheered as Federal Reserve Chair Jerome Powell walked back a recent communications blunder. In early October Chair Powell stated we’re a “long way from neutral” interest rates (neutral rates are interest rates that don’t help or hurt the economy). This was a likely catalyst for some of the market turbulence we’ve been experiencing. It’s likely Chair Powell recognized his slip-up since, last week, he changed his wording to “just below” the neutral range.

This week, Wall Street will be listening to Chair Powell again as he testifies before Congress. However, the biggest event of the week will probably be the November jobs report on Friday, December 7. Economists expect the unemployment rate will remain unchanged at 3.7% and that the economy added 198,000 jobs last month.

A partial government shutdown is possible Friday, December 7, as President Trump wants $5 billion for his border wall as part of a larger spending bill. Due to former President George H. W. Bush’s passing, however, President Trump and lawmakers appear willing to extend funding for one or two weeks.

In honor of the former president, the markets will be closed on Wednesday, December 5.

The Simply Money Point

Two risks have been greatly reduced but not yet eliminated. A trade deal will still need to be reached before that uncertainty is completely removed. Further, the Federal Reserve is still likely to raise interest rates two or three times in 2019.

At Simply Money Advisors, we’ll also closely watch earnings growth and leading economic indicators to see how the markets and economy could evolve in 2019.

Topics: Economics

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