Bam! Tariff Man Tears Down the Australian Market

If I was looking for someone to assuage my fears about any given topic, especially the markets, I’m not sure Donald Trump would be my first point of call.

Tact, subtlety and perceptiveness aren’t exactly his strong suits. That bright orange tan, quaffed blonde hair and pompous, yet somewhat careless swagger gives away his style of diplomacy. And that’s usually one of buffoonery and grand proclamations of being the biggest, best and brightest president in all the land!

For the last two years, the world has been watching on as old Trumpy stomped all over political etiquette and tore down long-established treaties. In the one corner, he has his loyal supporters cheering him on and bashing any media outlet that criticises his dealings. And in the other are those who would like to see him impeached, along with the world leaders who can barely stifle a smirk in the face of his utter lack of self-awareness.

His latest bizarre political move involved the G20 summit in Argentina where Trump and Chinese President Xi Jinping agreed on a ceasefire in the US–China trade war. Among other things, Trump decided to leave the tariffs on $200 billion worth of Chinese goods at 10% and wait 90 days before raising them further.

For a minute there, the world breathed a sigh of relief. Investor confidence rose and US markets briefly went up after having experienced a shockingly volatile time during October and November.

But then came this stunning display of statesmanship…

MoneyMorning 07-11-18

Source: Twitter

[Click to open in a new window]

Finesse at its finest.

Tariff Man bursting through, with all caps blazing, had the exact opposite effect of what he intended. That is, if he even had an intention to begin with.

Soon after the tweet, the US markets tanked once again. The Dow Jones Industrial Average closed down 800 points (or 3.1%) for the day, and the NASDAQ fell further to an astonishing decline of 10.9% overall for the past three days. Major US banks like Morgan Stanley, Citigroup and Capitol One also slid dramatically, bottoming out at 52-week lows.

It seems that the cease fire in the trade war between the US and China was only fleeting. And US stocks were destined to continue their nosedive.

But as the managing director of Global Markets Research Alec Young warned, this market chaos isn’t just confined to the US:

While US growth is still holding up OK, worries are increasing about the overseas economic outlook. All this macro-economic uncertainty is clouding the 2019 earnings outlook, leading to increasingly violent equity swings as investors try to handicap what 2019 will look like,’

Unfortunately, Young is right. As it appears, Australia has already begun to feel the ripple effects of Tariff Man from across the ocean.

If you want to protect your family wealth, you need to know why this financial expert is predicting economic collapse. Find out more here.

Drooping expectations

With all of the trade tension over the past year in the US, along with our own problems back home, Aussie markets have been on a steady decent for some time now.

According to the ABC, Australia’s Gross Domestic Product (GDP) only grew by 0.3% from June–September this year, and only 2.8% over the whole of 2018 so far. Overall, these figures represent the weakest economic expansion in two years.

This is a far cry from the 3.3% that analysts were expecting, and comes despite all of the government spending and strong contributions from net export.

Working behind the scenes to create this disappointing result is a weak housing market, declining household spending and poor results from the construction, retail and manufacturing sectors.

In this climate, consumers are understandably feeling the pinch. According to IFM economist Alex Joiner, household spending has only increased 2.5% over the year thus far — which is likely due to the fact that the household savings rate is also at its lowest point since 2007, right before the GFC. 

Aside from that, this property downturn has been spurred on by the household debt to income ratio increasing exponentially every year since 1990, along with the Royal Commission into banking dampening consumers’ confidence in the banks.

So when it comes to the RBA raising interest rates, this environment is hardly conducive to doing so anytime soon. As Joiner explains:

Household income per capita was slightly negative in the quarter and just up 1.2 per cent over the year — hard to see them hit with a rate hike any time soon.

All of these factors have contributed to a significant softening of the domestic economy. Investors are anxious, and consumers seem to be swimming in debt with no reprieve in sight.

Capital Economics analyst Marcel Thieliant is even forecasting that things will get a lot worse for Australia before they get better:

The upshot is that we expect GDP growth to slow further to 2.5 per cent in 2019.’

It seems that in the US and here at home, our high expectations for the economy were short lived. Trump is still tweeting, the trade war is still raging on, and interest rates remain stagnant.

But if anyone’s pleased that the world’s population is finally catching on to the crumbling economy, it’s Vern Gowdie. In his book, The End of Australia, he outlines exactly how he foresees Australia’s markets going over the next decade and how you can prepare your wealth for the worst.

To get your copy for only $4.95 today, you can click right here.

This week in Markets & Money

The world is seeing a wave of cannabis legalisation. Uruguay was the first country to make the move. And now Canada has followed their lead. And ever since then, the market has been booming. So as Selva wrote on Monday, those who invest early in this nascent industry could stand the make the most.

To read the full story, click here.

Over the weekend, the G20 meeting finished without a glitch. The weekend was all smiles, photo ops and cooperation talk…even between the US and China. Global markets rallied yesterday after the news. But as Selva wrote on Tuesday, the Fed could shake up the markets again if they decide to raise interest rates…

To learn more, click here.

Then on Wednesday, Selva looked at the bizarre movement of the magnetic field surrounding the Earth, and how in some ways, it’s similar to the fluctuation of interest rates…

To find out more, click here.

The Aussie property market has had one of the longest runs in the world. Prices have gained a whopping 6,556% since 1961. Yet much of it has been financed through an ‘epic’ proportion of debt and low interest rates. But, as Selva wrote on Thursday, 2019 is shaping to be a much different scenario.

To read on, click here.

And then, on Friday, Selva looked at game-changing accommodation service, Airbnb, and their plans to revolutionise the home design industry. With property markets dwindling, Selva dives into other income generating investments.

To find out more, click here.

Until next week,

Katie Johnson,
Editor, Markets & Money

Katherine Johnson, usually going by just ‘Katie’, is a member of Port Phillip Publishing’s editorial team, as well as the Editor of the Saturday edition of Markets & Money. Katie works with all of your editors to maintain the quality of their research and analysis. In her Saturday Markets & Money articles she specialises in cryptocurrency and technology stories, and brings you a recap of the week from your other Markets and Money editors.

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