Investors Shouldn’t Overreact to Trade Dispute Issues

It’s a slow day in the markets because of the U.S. Independence Day holiday, which usually means it’s a good day to keep your powder dry and wait for the volume to return. It’s also a good day to catch up on your reading and market studies. Here are a few odds and ends from the week so far.

Quote of the Week:

One strategist told CNBC Monday that President Donald Trump’s call for Saudi Arabia to abruptly increase oil production should be dismissed as political “noise”.

In response to President Trump’s tweet last Saturday stating Saudi Arabia’s King Salman had agreed to his request and would soon raise oil output by up to 2 million barrels per day (bpd), Beat Wittman, a partner at financial consultancy Porta Advisors, told CNBC’s “Squawk Box Europe” Monday, “This incident with the Saudis and the U.S. administration is just noise … You cannot order 2 million barrels like ordering a coffee somewhere.”

How can you argue with a financial consultant with the name Beat Wittman? His name sounds like he’s challenging every other financial consultant out there to outperform him. But here’s a guy that gets Trump. The President likes to exaggerate. He’s a master salesman so just go with the flow when he’s talking business and finance. Put him in his place with a clever quote and avoid attacking the man without offering alternative advice.

Miss a Little, Miss a Lot

It seems that every day we’re being peppered with headlines saying “Trump’s tariffs are going to cause a recession, Trump’s tariffs are going to cause massive layoffs, and trade wars are bad, etc. ad nauseam.”

The headlines are making investors nervous. The headlines are causing market jitters. Don’t you just get tired of so-called analysts just repeating the headlines and not actually diving into the details as to why?

Let’s take a look at two examples from this week. How many of you read the report released on Tuesday called IBD/TIPP Poll? It was out there in every economic calendar I use. How many of you saw a comment on the report in main stream news?

On Tuesday, “the IBD/TIPP Economic Optimism Index, a leading national poll on consumer confidence, rose another 4.6 percent to 56.4 in July, continuing its record run. The index has now spent 22 consecutive months in positive territory, remaining above 50 since October 2016. An index reading below 50 indicates pessimism while above 50 signals optimism for the IBD/TIPP Indexes.”

Here’s what Terry Jones, IBD’s Commentary Editor, had to say about the report:

“Despite concern over a potential trade war, the majority of poll respondents support tariffs levied by the President and believe that the U.S. has been taken advantage of on trade.”

“Worries about a trade war have not yet translated into a decrease in economic optimism, as this measure remains quite high. People also feel like their personal financial outlook is strong with the very low unemployment rate. Responses show that Americans believe Trump’s leadership is particularly strong when it comes to the economy, which has performed well throughout his presidency.”

Why wasn’t this in a headline?

Furthermore, in another piece of optimistic news, buried on the internet on a major U.S. holiday when the volume of readers is extremely low, a fund manager told CNBC that Donald Trump’s tariffs, rhetoric and presentation on trade are all wrong, but the president’s take on global trade imbalances is right.

Speaking to CNBC’s “Squawk Box Europe”, Eric Lonergan, macro fund manager at M&G, said:

“I actually think he’s (Trump’s) right on the big picture on trade.”

“The real message here – and I think he’s right about this, but it’s hidden in the presentation and sound and fury – is fundamentally European macro-economic policy… is that Europe is free-riding global demand, running huge trade surpluses and nobody has really stood up credibly to that ideology until Trump.”

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• Asian Stocks Lower, European Equities Mixed, U.S. on Holiday
• Time is Running Out, as 6th July Tariffs Loom Large
• Trump and Saudi King Agree to Boost Production… But How Much and When?

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Tariff Pressure May Be Working

Finally, in yet another piece of key information buried during the holiday break, according to the Financial Times who cited diplomats briefed on the matter, European officials are considering holding talks on a tariff-cutting deal between the world’s largest car exporters to prevent an all-out trade war with the U.S.

The FT reported that three diplomats, which it did not name, said the European Commission “is studying whether it would be feasible to negotiate a deal with other big car exporters such as the U.S., South Korea and Japan.”

And here is the reason why this is important, the move is designed to address Trump’s complaint that the U.S. sector is unfairly treated, while reducing export costs for other participating countries’ auto sectors.

So it looks like at the very minimum, the Europeans are admitting there is something that needs to be fixed.

Summary

Getting back to Lonergan’s comments, he went on to say that “it was ironic that Trump had been criticized by the “commentariat” on the details of trade tariffs, but that his wider aim to address global trade imbalances was being overlooked with too much focus on the headline-grabbing tariff threats and trade war fears.”

Well it looks like Trump’s message may be getting through.