“New US Tariffs On Car and Truck Imports? …..”

New US Tariffs On Car and Truck Imports?

A national security investigation has been launched by the Trump administration into car and truck imports that could lead to new US tariffs similar to those imposed in March on steel and aluminium.  The investigation will focus on whether vehicle and parts imports were threatening the industry’s Research and Development, and advanced technologies according to the Commerce Department.  High tariffs could have a negative impact on the Asian automakers such as Toyota Motor Corp, Nissan Motor Co, Honda Motor Co and Hyundai Motor Co to which the United States is an important market.  On the news, automakers’ shares went through a sell-off.  Other governments such as Japan, China and South Korea said they would monitor the situation, while Beijing which is keeping an eye on the United States as a potential market for its cars, added that it would defend its interests.   Ahead of mid-term elections Trump is courting voters and is focusing on the agenda of “America First” with the aim of clawing back manufacturing jobs lost to overseas competitors.

US and Korea

US President Donald Trump on Thursday called off a historic summit with North Korean leader Kim Jon Un which was scheduled for 12^th June in Singapore in a letter to Kim.   The announcement by Trump came about after repeated threats by North Korea to pull out of the summit over what it saw as confrontational remarks by US officials.  Trump called it as a “missed opportunity” and said that he still hoped to meet Kim someday.  However, the chances for a fast rescheduling appears remote and cancellation of the summit will renew fears of a return to conflict on the Korean peninsula. Meanwhile North Korea said it is still open to talks after Trump-Kim summit was cancelled.  Pyongyang hoped for a “Trump formula” to resolve the standoff over its nuclear weapons programme.   The US stocks dropped sharply on the news and the benchmark S&P 500 Index fell more than half a percent in 10 minutes.  Investors looked for refuge in the US treasury debt as a safe alternative, driving the yield on the 10 year note down to a 10-day low and back below the 3 percent threshold which is a psychological important level.  Furthermore, the US dollar also weakened broadly in particular against the Japanese yen which climbed to a two-week high against the Dollar.

US Sanctions On Iran

Secretary of State Mike Pompeo on Monday threatened to impose the “strongest sanctions in history” against Iran if it did not accept a sweeping series of US demands amongst which are effectively giving up its nuclear ambitions,  reduce its ballistic missile program, and ending its expansionist behaviour.  He warned that the United States would “crush” Iranian operatives and allies abroad and told Tehran to withdraw all forces under its command from the Syrian civil war where they back President Bashar Al Assad.  Iran is unlikely to accept the US demands.  Since US President Trump this month withdrew from the 2015 nuclear agreement aimed at preventing Tehran from obtaining a nuclear weapon, tension between the two countries have grown.

Trump’s Plan to ZTE

US President Donald Trump on Tuesday has put forward a plan to fine ZTE Corp and shake up its management.  His proposal however had immediate resistance in Congress where Republicans and Democrats accused the president of bending to pressure from Beijing to ease up on a company that has admitted to violating sanctions on Iran.  When speaking at the White House Trump said US technology companies have been hurt  by a decision taken by the Commerce Department that prohibits them from selling components to China’s second-largest telecommunications equipment maker.  ZTE shut down most of its production after the ruling was announced.  Trump said that ZTE may instead face a fine of up to $1.3 billion, form new management and a new board of directors, though it was not clear whether he had the legal authority to impose new financial penalties.  Some 26 senators urged the administration in a letter to keep penalties in place for “serial and pre-meditated violators of US law, such as ZTE.” The Senate Banking Committee also voted 23-2 to make it harder for the president to modify any penalties on Chinese telecommunications firms.

China’s Tariff Cuts

Authorities in China announced that they will reduce import duties on passenger cars from 25 percent to 15 percent from 1^st July.  The move came about as trade hostilities between China and the US eased following meetings in Washington last week.  On the news, shares of Jaguar, Land Rover owner Tata Motors Ltd and BMW jumped.  There was criticism on the Trump’s administration of walking back on tariffs on Chinese imports.

Japan’s Exports

Japan’s exports accelerated in April on increased shipments of cars and machines which are used to make semiconductors.  Exports grew 7.8 percent in April from the same period a year ago.  It is likely that exports will continue to grow amid increased demand for manufacturing equipment, cars and car parts, but Japan’s trade surplus with the United States makes it a potential target for US President Donald Trump’s protectionist policies.  Data from the finance ministry show that exports of cars rose 15.3 percent in April from the same period a year ago, while exports of semiconductor manufacturing equipment rose 18.2 percent year-on-year.  China is Japan’s largest trading partner and exports to China rose an annual 10.9 percent in April (in March the increase was of 10.8 percent) due to an increase of shipments of machines used to process metals and to make electronic components.  Japan’s exports to the United States rose 4.3 percent year-on-year in April, faster than a 0.2 percent annual increase in March.  Japan’s trade surplus with the United States was 615.7 billion yen ($5.55 billion) in April up 4.7 percent from the same period a year ago.  Trump has imposed tariffs on steel and aluminium imports which affect Japanese companies, and has criticised Japan for its low level of imports of American vehicles.  Last year Trump urged Japan to buy more US military hardware, which remains an option for Japan to reduce its trade surplus with the United States.

Venezuela

The markets are keeping an eye on Venezuela, an OPEC nation of 30 million people, where President Nicolas Maduro faced international condemnation on Monday after his re-election.  Maduro, who is 55, hailed his win in Sunday’s vote as a victory against “imperialism” but his main rival alleged irregularities and refused to recognize the result.  The opposition boycotted the election given that, two of its most popular leaders were barred from running, authorities had banned the coalition and several of its parties from using their names, and the election board is run by Maduro loyalists.  Turnout was under 50 percent.  Maduro promised to prioritize the economic recovery after five years of recession.

Italy

The 5-Star Movement and the far-right League sought the backing of President Sergio Mattarella on Monday for a candidate to lead a coalition government.     On Wednesday the President gave political novice Giuseppe Conte a mandate to lead the first government in Italy made up of anti-establishment parties that have vowed to shake up the European Union.  The parties put forward a prime minister whose programme, which was agreed last week, calls for billions of euros in tax cuts, additional spending on welfare of the poor and a roll-back of pension reforms.  Giuseppe Conte who is a law professor with no political experience said he would need a few days to draw up a list of ministers for his administration which will be backed by the radical 5-Star Movement and far-right League.  Italy’s borrowing costs increased further with the two-year bond yields at their highest level since December 2016.  Italian stocks fell as much as 2.1 percent in early trade before trimming their losses.  Investors fear is that the government will go on a spending spree and pile up debt and the fiscal rules set by the European Union.   Over the weekend, both the 5-Star and the League pushed back against the concerns over their spending plans.  Italy’s 10 year bond yield rose to 2.28 percent, their highest level since July 2017.   On Friday the gap between Italian and German 10-year government bond yields pushed out to 200 basis points for the first time in nearly a year.   Conte’s first words, since receiving his mandate, suggested his initial priority would be European reform.

France

French business activity slowed more than expected in May, shifting down to its slowest pace in nearly a year and a half as a string of public holidays weighed on the service sector, according to a monthly survey.    The flash May estimates of business activity in the euro area is given attention in view of the recent slowing Eurozone growth momentum.

Malta

According to the Central Bank of Malta Economic Update (5/2018) economic sentiment fell, reflecting weaker sentiment across all sectors.  In March, retail sales and tourism activity grew at a strong pace in annual terms, while industrial production contracted at a slower rate.  Labour market conditions remained favourable with the number of registered unemployed declining on an annual basis.  Eurostat’s measure of the unemployment rate fell to a historically new low.  The annual inflation rate based on the Harmonised Index of Consumer Prices remained unchanged at 1.3 percent in March.  The annual rate of change of Maltese residents’ deposits decelerated to 5.7 percent, while the annual growth in credit to residents accelerated to 2 percent.  In April 2018, the Economic Sentiment Indicator (ESI) edged further down to 111 from 119 in the preceding month, whilst remaining above its long-term average of 100.  Lower sentiment was registered within all sectors.  The largest decline is in the industrial confidence indicator.  Confidence in the retail sector also declined further in April.  The recent drop in sentiment was driven by retail firm’s expectations of business activity in the next 3 months and higher stock levels.  Consumer confidence declined going to 23 from 26 in March but remained well above the long-term average.  The main driver behind the decline being fewer consumers predicting an improvement in the general economic situation over the next twelve months.  Jobsplus data show that in March the number of persons on the unemployment register dropped further to 1,954 from 2,649 a year earlier (Feb 2018: 2,005).

Currencies

The euro slipped on Friday and is set for a sixth consecutive week of losses as concerns over Italy’s debt outlook weighed on sentiment.  This week investors had to digest a week of heavy news including perceived dovish Fed minutes, and mixed European data with the dollar holding below a December 2017 high of 94.19 this week.  Furthermore, data this week showed German PMI data fell to a 20 month low in May indicating that economic momentum in Europe’s biggest economy was faltering. European Central Bank minutes, of its April meeting, showed that policymakers were worried about a slowdown in the Eurozone and political uncertainty in Italy.   Meanwhile, the dollar had been rising for weeks in view of the widening yield, but lost some of its momentum after minutes of the Federal Reserve were perceived as more dovish (monetary policies that involve low interest rates)  than the market had expected.

Bitcoin

The US department of Justice has launched a criminal probe into whether traders are manipulating the price of bitcoin and other digital currencies, Bloomberg reported on Thursday.  According to Bloomberg, the investigation concerns the illegal practices that can influence prices such as spoofing or flooding the market with fake orders to trick other traders.

Deutsche Bank

Deutsche Bank is cutting more than 7,000 jobs to reduce costs and boost profits. The global headcount would fall to below 90,000 cutting the equities sales and trading jobs with a 25 percent.  The bank has been losing ground to US rivals mainly in New York and London.  Christian Sewing who became CEO in an abrupt management reshuffle last month said the bank was committed to its international presence, with a plan to scale back its global investment bank and refocus on Europe and its home market after three consecutive years of losses.  The bank also plans to cut spending by 1 billion euros by the end of 2019 in its investment bank.

Gold

Gold prices eased on Friday on profit-taking after it went above the $1,300 in the previous session as US President Donald Trump decided to call off a meeting with North Korean leader Kim Jon Un calling safe-haven buying.  Gold is seen as a safe haven asset to invest in during times of political and financial uncertainty alongside the Japanese Yen.

Oil

On Monday the price of oil was lifted as stocks and other commodities rallied, after the United States said that it had put a possible trade war with China “on hold”.    The two largest economies agreed to drop off their tariff threats while they work on a wider trade agreement, as said by US Treasury Secretary Steven Mnuchin.  Last week the energy ministers of Saudi Arabia and the United Arab Emirates voiced concern about recent oil market volatility and plan to meet Russian counterpart Alexander Novak in St Petersburg to continue with the discussions. Concerns over supply in Iran and Venezuela, following new US sanctions, had pushed both Brent and WTI to multi-year highs while Brent broke the $80 threshold last week for the first time since November 2014.   On Thursday oil fell driven lower by the prospect of the first increase in OPEC output since 2016 in the face of concern of over supply from both Venezuela and Iran.  A surprise rise in US crude inventories has raised doubt over seasonal demand.  Benchmark Brent futures were down 59 cents at $79.21 a barrel, while US crude futures eased 41 cents to $71.43 a barrel.  OPEC and some non-OPEC major oil producers are meant to meet in Vienna on 22 June.

GDPR

On Friday 25^th new European privacy regulations will go into effect which will force companies to be more attentive to how they handle customer data, while consumers will have new ways to control their data and further enforce their privacy rights.  The GDPR replaces the rules going back to 1995 and introducing privacy laws that can fetch fines of up to 4 percent of global revenue or 20 million euros whichever is higher.  For many privacy advocates the new law is a model for personal data protection in the internet era we are living and has called for other countries to follow the European model.  Many critics see the rules as overly burdensome, in particular for small businesses.  The GDPR strengthens and clarifies existing individual rights, such as the right to have one’s data erased and the right to ask a company for a copy of one’s data.  Other areas covered by GDPR is the right to transfer one’s data from one service provider to another and the right to restrict companies from using personal data.  The International Association of Privacy Professionals found that only 40 percent of companies affected by the GDPR expected to be fully compliant by 25^th May.  One particular piece of the GDPR that is causing particular confusion is the right to data portability.

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