USA vs China: Trade War Escalates
Analysts continued to warn about the dangers of an escalating trade war on Monday between USA and China.
Semiconductors and banks stocks were among the decliners. The biggest U.S. banks slid.
Agriculture equipment makers Deere & Co. and AGCO Corp. tumbled as China suspended imports of U.S. agricultural products. The escalating trade tensions are also a major risk for the U.S. automotive industry, which has significant exposure to the country.
President Donald Trump tweeted about China and the Fed on Monday morning, saying: “China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation.’ Are you listening to the Federal Reserve? This is a major violation which will greatly weaken China overtime!”
Bank investors’ eyes were “glued to the yield curve last week,” with Trump’s tariff tweet on Thursday, Graseck wrote in a note. They’re now asking about Morgan Stanley’s net interest margin (NIM), outlook.
Graseck didn’t change her NIM assumptions — yet. “We bake one additional cut of 25 basis points in 2019 in-line with our economist, and bake in the 10-year at 1.75% by mid-2020,” she wrote. She’ll update NIM and earnings per share estimates “if it looks like these trade tariffs are going through as September approaches.”
“The U.S. and China are moving into one of their most aggressive phases yet in the year-plus long trade war and we fully expect things to escalate from here,” Treyz wrote in a note.
Furthermore, her conversations with Republicans point to the belief that “China’s economy is on the brink of collapse,” she said, with turmoil in Hong Kong “considered evidence of an organic domestic uprising that many believe the Chinese government cannot contain.” Republicans may also believe Trump will “galvanize” his base behind him while attracting “anti-trade and union Democrats in the Rust Belt as he takes on the mantle of a wartime president going into 2020 by engaging in this trade war.”
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