{"id":1502299,"date":"2024-11-14T12:45:00","date_gmt":"2024-11-14T17:45:00","guid":{"rendered":"https:\/\/bugaluu.com\/news\/?p=1502299"},"modified":"2024-11-14T12:45:00","modified_gmt":"2024-11-14T17:45:00","slug":"em-assets-hit-by-negative-macro-backdrop-amid-trumps-expected-tariff-flurry-sparking-strong-dollar","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/em-assets-hit-by-negative-macro-backdrop-amid-trumps-expected-tariff-flurry-sparking-strong-dollar\/1502299\/","title":{"rendered":"EM Assets Hit By Negative Macro Backdrop Amid Trump’s Expected Tariff Flurry Sparking Strong Dollar"},"content":{"rendered":"

EM Assets Hit By Negative Macro Backdrop Amid Trump’s Expected Tariff Flurry Sparking Strong Dollar<\/span><\/p>\n

\n

A Republican sweep has been priced into core markets – stronger US equities, higher Treasury yields, and a more robust dollar – largely pressuring emerging market equities and currencies lower. This time, President-elect Trump is expected to hit China with a barrage of tariffs early in his administration.<\/p>\n

Given tariff risks and trade uncertainty, emerging market equities have been sliding as\u00a0Trump’s projected protectionist trade policies, higher rates, and stronger dollar\u00a0imply a negative macro backdrop for EM assets.\u00a0<\/p>\n

<\/a><\/p>\n

On Thursday, Bloomberg’s\u00a0Sebastian Boyd published a list showing Trump’s tariff risks and trade uncertainty represent a negative growth hit for the rest of the world…\u00a0<\/p>\n

President-elect Donald Trump’s campaign promises suggest that <\/em>second-term tariffs<\/em><\/strong> may be very different from those in his first term \u2014 <\/em>broader, steeper<\/em><\/strong>. Their impact will be complex and much will depend on how other countries and the EU respond. But we can extrapolate from history and make some assumptions.<\/em><\/p>\n

First, tariffs aren’t close to priced in yet. If Trump proceeds with what he’s vowed to do, we will see steep declines in emerging-market stocks and currencies. Equities in more developed countries will also fall, especially in Asia. Health- care stocks and US financials seem to be the best place to shelter.<\/em><\/strong><\/p>\n

Tariffs are an <\/em>inflationary tax<\/em><\/strong> on US imports. They push up prices, but also <\/em>inflation expectations and Treasury yields<\/em><\/strong>. They will have negative effects on US companies and consumers, but we can assume that they will be tailored to minimize those effects.<\/em><\/p>\n

The <\/em>impact of tariffs, even highly tailored ones, is likely to be strongly negative outside the US.<\/em><\/strong> After tariff announcements in Trump’s first term, the <\/em>dollar gained and emerging-market currencies and stocks fell<\/em><\/strong>, steeply in some cases. And the negatives rolled out beyond just the targeted countries and industries.<\/em><\/p>\n

However, <\/em>retaliatory tariffs from other countries<\/em><\/strong> may also be targeted to produce maximum inconvenience for the US, especially in industries like soy-farming that are strong in Trump-voting areas.<\/em><\/p>\n

Trump’s early experiments with taxing imports were gradual. He started with solar panels and washing machines. Then in March 2018, he imposed tariffs on steel and aluminum from a list of countries which he later expanded.\u00a0<\/em><\/p>\n

To measure the impact of those tariffs, I merged the S&P 500, Stoxx 600, MSCI Emerging Markets and MSCI Asia Pacific indexes, then removed the smallest 10% of companies by market capitalization, to create a universe of more than 2,000 names. I then measured share-price performance for the three- and six- month periods starting on the last day of February 2018.<\/em><\/p>\n

Chinese stocks saw steep losses.<\/em><\/strong> There are more than 400 Chinese stocks in my sample, and 38 of 59 industry sub-sectors fell in the first six months amid concerns that the trade war would widen. <\/em>Chinese retailers and automakers were among the worst-affected<\/em><\/strong>, with a median decline of more than 30%, while apparel & textile products and medical equipment & devices escaped.<\/em><\/p>\n

There was <\/em>a lot of collateral damage<\/em><\/strong>. In the interests of legibility, the chart above shows the 15 largest countries in our sample. Elsewhere, <\/em>Turkish stocks fell a median 52% in the six months through August 2018. South Africa and Indonesia also had steep losses<\/em><\/strong>.<\/em><\/p>\n

In April 2019, Trump threatened a tariff on cars made in Mexico. In June, he backtracked, claiming the threats had worked. In the meantime though, the median loss on Mexican stocks was 16%. The median US stock in the sample slid 0.9%. The S&P 500 oil & gas index fell 10%. <\/em><\/p>\n

At the start of May that year, <\/em>Trump’s administration announced tariffs on $200 billion of Chinese goods.<\/em><\/strong> This time the impact was more limited than it had been in 2018. Over the <\/em>next three months<\/em><\/strong>, Chinese stocks fell a median 7.8%, then bounced back to eke a median 0.6% over a six-month period.<\/em><\/p>\n

In a separate note, Goldman’s\u00a0Tadas Gedminas and\u00a0Teresa Alves told clients last week…<\/p>\n

This time around <\/em>our expectation is that tariffs against China could be implemented relatively early<\/em><\/strong> in the administration, which would likely pose a challenge next year. But our prior work suggests that the <\/em>market struggles to price this risk ahead of time<\/em><\/strong>, with most of the tariff-related price response taking place around actual announcements (as was primarily the case for CNH). This suggests that the market could still maintain the latest price action despite prevailing risks.<\/em><\/p>\n

Since last Tuesday, the dollar has reigned supreme, while emerging markets and global stock ex-US have slipped into negative territory.\u00a0<\/p>\n

<\/a><\/p>\n

EM asset\u00a0underperformance will persist as long as the dollar remains strong.\u00a0<\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nThu, 11\/14\/2024 – 07:45<\/span><\/p>\n

\u200bhttps:\/\/www.zerohedge.com\/markets\/em-assets-hit-negative-macro-backdrop-amid-trumps-expected-tariff-flurry-sparks-strong<\/a>\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

EM Assets Hit By Negative Macro Backdrop Amid Trump’s Expected Tariff Flurry Sparking Strong Dollar A Republican sweep has been priced into core markets –…<\/p>\n","protected":false},"author":0,"featured_media":1502300,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1502299","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","wpcat-1-id"],"_links":{"self":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1502299","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/comments?post=1502299"}],"version-history":[{"count":0,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1502299\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media\/1502300"}],"wp:attachment":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media?parent=1502299"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/categories?post=1502299"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/tags?post=1502299"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}