As tensions between the U.S and China intensify over tariffs, the effects of the conflict are reverberating throughout the financial markets. The relationship between the two economies has been particularly caustic after President Trump’s said that he is thinking of doubling previously suggested tariffs on $200 billion worth of Chinese commodities. This caused a huge pressure on Asian stock markets, pushing down Hang Seng Index to its lowest level since September 2017. The Chinese Yuan continues to trade at its lowest levels in a year.
According to Hussein Sayed, Chief Market Strategist at FXTM, a large portion of the imposed tariffs will be paid by U.S. consumers and consumer price index figures could be higher, reflecting the soaring prices. In turn, rising inflation would lead to higher U.S. interest rates which would translate into a higher cost of borrowing and debt servicing. According to Sayed, U.S. companies affected by the trade war could include Tyson Foods, Harley Davidson, United Technologies, Caterpillar, and Coca-Cola, among others.
"Given that we’re almost at the end of earnings season, trade wars will return to dominate the headlines. The next big risk is likely to be the U.S. midterm elections in November," said Sayed. I think there’s a high chance that the Democratic Party will take over the U.S. Congress and end the Republicans’ single-party control. This won’t be good news for equities, and I expect to see a rotation to non-cyclical stocks and an increase of cash in investors’ portfolios."