The U.S China Trade War, the UK Pound and the Eurozone Economy in Focus

Who’s winning the U.S – China trade war? Is it really the U.S? How has the Pound and the UK economy performed and what about the Eurozone?
Bob Mason
China USA trade war

How is the continuing US/China trade war affecting the respective economies? Who is benefiting the most?

The big question is really whether Trump’s goal was to merely divert trade away from China or actually return manufacturing to U.S soil.

If it’s the first of the two, then the U.S may be on top from a trade war perspective. China has found itself losing out to the likes of Mexico as tariffs rolled in.

It’s not one-way traffic, however. China has hit back with tariffs on politically sensitive industries including agriculture. Soybean exports have been hit hard. When considering needed voting support from the farming belt, this may be one issue that could surface next year.

On the economic data front, it’s all about optics. The U.S trade deficit may have narrowed marginally, but certainly not to the levels that Trump may have hoped for.

Looking at the GDP numbers, the U.S economy has been a shrinking violet on relative terms. While China saw growth slow from 1.5% to 1.4% in the 1st quarter, the U.S economy is forecasted to slow from 3.4% to 1.8%. Granted, the extended government shut down will have contributed, but a weaker global economy is a secondary factor.

PMI numbers have reported a bounce back in manufacturing sector activity in China, following a string of monthly contractions. The expansion comes at a time when global demand has waned and tariffs should be biting. China may well have found an alternative avenue. Increased demand was not just domestically driven but also fueled by demand from overseas.

While hoarding ahead of tariffs continued to support demand for goods from China, demand for goods from overseas have not collapsed since the rollout of tariffs.

If Trump was looking to hand Mexico with China’s lost exports to the U.S, then job done, but that’s likely to be the worst possible outcome.

Some will argue that Trump has won this one. By the time Presidential Campaign kicks off, however, there may well be plenty of ammunition for the Democrats to make use of…

China’s Premier is going to be around a lot longer than Trump and that makes China’s strategy in the trade war a very different one to that of the U.S.

How has the Brexit delay affected the UK economy and in particular the GBP?

The UK economy has shown resilience since the initial reaction to the EU Referendum result.

We’ve seen the unemployment rate fall to the lowest level since 1975, with wage growth at its fastest pace in a decade.

Retail spending has been on the rise through the quarter, with March numbers being particularly impressive.

The private sector PMI numbers, however, have painted a somewhat different picture. Service sector activity was at its joint weakest in a decade last month. As the main contributor to the UK economy, the weak activity was attributed to uncertainty over Brexit. Weak export orders didn’t help, however. The EU economy is on the back foot and that’s never a good thing for the UK. This has ultimately contributed to a widening in the UK trade deficit.

While consumption has been impressive, the real uncertainty is on whether the increase in domestic consumption and jump in imports is as a result of hoarding ahead of a possible no deal departure from the EU.

Annually, the economy grew by 2%, hitting levels not seen since late 2017. Month-on-month, the economy grew by 0.2%. These are numbers that few would have expected when considering the lack of progress on Brexit negotiations.

So, while until now, the economy has fared better than anticipated, the next few months will be telling. Hoarding can’t go on forever and, while a weaker Pound will support demand for UK goods, consumption could hit a wall.

As for the Pound, sitting at just shy of $1.30 levels is almost as surprising as to how well the UK economy has performed.

Uncertainty over what lies ahead for Britain and a complete failure by the Tory party to unite and deliver a deal should have sunk the Pound. A slide could be on the horizon… A vote of no confidence and the prospects of a Labour Party take over and 2nd EU Referendum would test even the more die-hard Sterling bulls…

For now, support comes on expectations of Britain leaving with a deal, if it leaves at all. Time will tell whether that’s a glass ceiling…

The ECB slashed its growth forecast for 2019. What are your thoughts for the Bloc’s economy in 2019?

EU economic indicators have been far from impressive in recent months.

  • German manufacturing sector activity continued to contract in April. Of significance was new export orders seeing its 2nd largest fall in a decade.
  • While the services sector has seen a pickup in activity, it’s not been enough to offset the doom and gloom.
  • Throw in political uncertainty in Italy and Spain, the possible ramifications of a disorderly Brexit and it gets a little messier.
  • Then consider the prospects of U.S tariffs on EU goods and it could get from bad to worse.

For now, the EUR has managed to hold on. Market risk sentiment fuelled by hopes of a resolution to the U.S – China trade war has helped. All of this, in spite of a particularly dovish Draghi.

It remains to be seen, however, whether an end to the trade war will deliver the economic catalyst that many are hoping for…

Don't miss a thing!

Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All

Top Promotions

Top Brokers

IMPORTANT DISCLAIMERS
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
RISK DISCLAIMER
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.
FOLLOW US