Trade wars bite

Although the US and China had been widely expected to agree a trade deal, US President Donald Trump instead confounded hopes by announcing that tariffs on over US$200 billion-worth of imports from China would increase from 10% to 25%. In response, China raised tariffs on US$60 billion-worth of US goods from 1 June

  • Narendra Modi retained power in India’s General Election
  • Brazil’s economy shrank contracted in Q1
  • China’s manufacturing sector contracted in May

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Although the US and China had been widely expected to agree a trade deal, US President Donald Trump instead confounded hopes by announcing that tariffs on over US$200 billion-worth of imports from China would increase from 10% to 25%. China’s Commerce Ministry warned: “No one emerges as a winner in a trade war”, and raised tariffs on US$60 billion-worth of US goods from 1 June. Meanwhile, at May’s Conference on Dialogue of Asian Civilisations, China’s President Xi Jinping emphasised China’s focus on openness, saying: “Civilisations will lose vitality if countries go back to isolation and cut themselves off from the rest of the world”.

 “Civilisations will lose vitality if countries go back to isolation” (President Xi Jinping)

China’s manufacturing sector contracted in May, undermined by a fall in new orders caused by a drop in demand. Corporate earnings in the sector contracted at an annualised rate of 3.7% in April, compared with a rise of almost 14% in March. Profits of manufacturers in electronic and communication equipment – which are likely to be more susceptible to higher US tariffs – fell by 15.3% over the first four months of the year. The Shanghai Composite Index fell by 5.8% during May. 

The number of corporate defaults in China is likely to climb to new highs this year, according to credit ratings agency Fitch, as companies struggle to cope with mounting refinancing pressure, a sluggish industrial sector, and deteriorating investment sentiment caused by the US/China trade conflict. 

India’s Prime Minister Narendra Modi won a decisive victory in the General Election with his Bharatiya Janata Party (BJP). The result was generally well received by investors, but Mr Modi will now have to tackle India’s slowing economic growth. Having expanded at an annualised rate of 6.6% in the final quarter of 2018, India’s economy grew by 5.8% during the first quarter of 2019. The CNX Nifty Index rose by 1.5% during May. 

Brazil’s economy contracted for the first time since the end of 2016 during the first quarter of 2019, shrinking at a quarter-on-quarter rate of 0.2%. The economy was hit by a sharp decline in the mining and quarrying industry that was exacerbated by the Brumadinho mining disaster. Policymakers at Brazil’s central bank maintained the benchmark Selic rate at its record low of 6.5%, citing the economic “softness” of late 2018 which has continued into early 2019. The Bovespa Index ended the month 0.7% higher.


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