The World BusinessMirror
Editor: Angel R. Calso
Oil extends drop as Trump fans growth fears on trade
O
IL extended declines— and was close to bearmarket territory—as an increasingly aggressive US trade policy fueled fears the world could be heading for a significant economic slowdown. Futures in New York fel l as much as 2.6 percent after slumping 5.5 percent on Friday. China struck a combative tone in a white paper released on Sunday, blaming the US for the collapse in trade talks and saying it won’t be pressured into concessions. That came after the White House rattled markets on Friday by announcing tariffs on Mexican goods and terminating India’s designation as a developing nation, stopping it from exporting products to the US without duties. Oil has now fallen almost 20 percent from a high in late April, wiping out about half of its rally in the earlier part of the year, mainly due to the increasingly fraught global trade environment. While a tense situation in the Middle East has been supporting prices somewhat, the White House indicated over the weekend that it would be willing to negotiate with Iran without preconditions. Meanwhile, whether Russia keeps cooperating with Saudi Arabia on production cuts is shaping up as an important price driver over the next few months. “The oil market continues to trade with extremely high beta to risk as concerns over a global slowdown escalate,” said Stephen Innes, managing partner at SPI Asset Management. “The latest sell-off should be a stark reminder of just how fragile the oil markets balancing act is, and should be enough to bring Russia back into the supply agreement fold.”
West Te x as Inter med i ate crude for July dropped 42 cents, or 0.8 percent, to $53.08 a barrel on the New York Mercantile Exchange at 7:25 a.m. in London after falling as much as $1.39 earlier. The contract is now down 19.9 percent from its closing high on April 23. If it finishes more than 20 percent lower than the April peak it will officially be in a bear market. Brent for August settlement fell 79 cents, or 1.3 percent, to $61.20 a barrel on London’s ICE Futures Europe exchange. The July contract closed 3.6 percent lower at $64.49 before expiring on Friday. The global benchmark crude was trading at a premium of $8.02 to WTI. There could be a recession in nine months if the US imposes 25-percent tariffs on an additional $300 billion of Chinese exports and Beijing retaliates, according to Morgan Stanley. Investors may still be underestimating the risks to the global economy from the trade war, Chetan Ahya, chief economist, wrote in a note released on Sunday. “There’s an increased likelihood the US slaps tariffs or implements measures to restrict trade against any countries it sees as engaging in unfair practices, such as China, Mexico and India,” said Takayuki Nogami, the chief economist at Japan Oil, Gas and Metals National Corp. in Tokyo. ”Even Japan could be a target.” Russia’s average daily oil output fell below its Opec+ target in May for the first time this year after buyers refused to take exports via Druzhba, the nation’s key pipeline to Europe, because of contamination. The country produced about 11.11 million barrels a day of oil last month, the lowest since June 2018. Bloomberg News
B
ANGKOK—Shares wobbled on Monday after United States and Chinese officials traded jibes in their widening clash over trade and technology. China’s Shanghai Composite lost 0.3 percent to 2,890.08 after surveys showed a deteriorating manufacturing outlook in May. Japan’s Nikkei 225 index lost 0.9 percent to 20,410.88, and Hong Kong’s Hang Seng shed 0.1 percent to 26,871.23. The S&P ASX 200 dropped 1.2 percent to 6,320.50. South Korea’s Kospi rose 1.3 percent to 2,067.85 after Samsung Electronics’ Vice Chairman Lee Jae-yong met with top executives of the company to discuss strategy as it weathers slowing demand for computer chips and smartphones, and the repercussions of the trade conflict between Beijing and Washington. “In this rapidly changing environment, we need to keep our unwavering focus on long term, fundamental leadership in technology,” Lee said in a statement provided by the company. India’s Sensex rose 0.8 percent to 40,031.29. Shares were flat in Taiwan and rose in Singapore. Markets in Indonesia, Malaysia and Thailand were closed. A private survey, the Caixin manufacturing purchasing managers’ index, or PMI, held steady at 50.2 in May. But business confidence in the report issued on Monday slipped to the lowest level since the series began in April
W
PRESIDENT Donald J. Trump speaks at the US Air Force Academy graduation. Thursday, May 30, 2019, at Air Force Academy, Colo. AP/DAVID ZALUBOWSKI
“America has had enough,” he tweeted. The president said last week that he will impose a 5-percent tariff on Mexican goods on June 10 to pressure the government of Andres Manuel Lopez Obrador to block Central American migrants from crossing the border into the US. Trump said the import tax will increase by 5 percent every month through October, topping out at 25 percent. But the president has been here before, issuing high-stakes threats over his frustration with the flow of migrants only to later back off. They include his threat earlier this year to seal the border with Mexico. Republicans on Capitol Hill and allies in the business community have signaled serious unease with the tariffs that they warn will raise prices for consumers and hurt the economy. Some see this latest threat as a play for leverage and
B3
Asian markets wobble as US, China trade barbs over tariffs 2012. The official manufacturing PMI, issued on Friday, sank to one of the lowest levels in three years. China released a “white paper” report on Sunday that blamed the conflict on the Trump administration, but stopped short of announcing details of a plan for retaliation against a US blacklisting of Huawei Technologies. On Friday, it said it would soon announce its own list of “unreliable entities” consisting of foreign businesses, corporations and individuals. Wang Shouwen, China’s vice commerce minister, said Beijing will issue more specific information on the list soon, but that it was aimed at enterprises that “violated market principles” and cut supplies of components to Chinese businesses for noncommercial reasons. Meanwhile at a meeting in Singapore, China’s defense minister warned its military would “resolutely take action” to defend Beijing’s claims over self-ruled Taiwan and disputed areas of the South China Sea. In his comments to defense chiefs, officials and academics at the Shangri-La Dialogue in Singapore, Gen. Wei Fenghe did not direct that threat at the US, and US Acting Defense Secretary Patrick Shanahan was not in the audience.
White House: Trump ‘deadly serious’ about Mexico tariffs ASHINGTON—A top White House official said on Sunday that President Donald J. Trump is “deadly serious” about imposing tariffs on imports from Mexico, but acknowledged that there are no concrete benchmarks being set to assess whether the US ally is stemming the migrant flow enough to satisfy the administration. “ We intentiona l ly lef t t he declaration sort of ad hoc,” Mick Mu lv a ne y, t he ac t i ng W h ite House chief of staff, said on Fox News Sunday. “So, there’s no specific target, there’s no specific percentage, but things have to get better,” Mulvaney said. “They have to get dramatically better and they have to get better quickly.” He said the idea is to work with the Mexican government “to make sure that things did get better.” On Monday, top officials from the two countries will start meetings in Washington. Mexican Economy Minister Graciela Marquez plans talks with Commerce Secretary Wilbur Ross. Two days later, delegations led by Secretary of State Mike Pompeo and Foreign Relations Secretary Marcelo Ebrard will meet. But Trump played down the effort. “Mexico is sending a big delegation to talk about the Border,” the president tweeted on Sunday. “Problem is, they’ve been ‘talking’ for 25 years. We want action, not talk.” Trump claims Mexico has taken advantage of the United States for decades but that the abuse will end when he slaps tariffs on Mexican imports next week in a dispute over illegal immigration.
Tuesday, June 4, 2019
doubt Trump will follow through. GOP Sen. John Kennedy of Louisiana, called the tariffs a “mistake” and said it was unlikely Trump would impose them. The president “has been known to play with fire, but not live hand grenades,” Kennedy said on CBS’s Face the Nation. “It’s going to tank the American economy,” he said. “I don’t think the president’s going to impose these tariffs.” Mexican officials are due to meet later this week with Secretary of State Mike Pompeo in a bid to come to a resolution. “I think what the president said, what the White House has made clear, is we need a vast reduction in the numbers crossing,” Kevin McAleenan, acting secretary of the Department of Homeland Security, said on CNN’s State of the Union. Mulvaney, who also appeared on NBC’s Meet the Press, said
Mexico could take various steps to decrease the record numbers of migrants at the border. He suggested the Mexican government could seal its southern border with Guatemala, crack down on domestic terrorist organizations and make Mexico a safe place for migrants seeking to apply for asylum. “There are specific things that the Mexicans can do,” he said. Mulvaney insisted that Trump’s threat is real. “He’s absolutely, deadly serious,” Mulvaney said. E conom i s t s a nd bu s i ne s s groups are sounding alarms over the tariffs, warning they will hike the costs of many Mexican goods that Americans have come to rely on and impair trade. But Mulvaney played down those fears, saying he doubts business will pass on the costs to shoppers. “American consumers will not pay the burden of these tariffs,” he said. He also suggested the tariffs were an immigration issue, separate from the trade deal the United States is trying to negotiate with Mexico and Canada. The tariff threat comes just as the administration has been pushing for passage of the United StatesMexico-Canada Agreement, which would update the North American Free Trade Agreement. Several top GOP lawmakers have expressed concerns that Trump’s tariff threat could upend that deal. The chairman of the Finance Committee, Sen. Chuck Grassley of Iowa, said last week the tariffs would “seriously jeopardize” passage of that agreement, which needs approval in Congress. AP
But Wei did have tough words on the trade war with Washington. “As for the recent trade frictions started by the US, if the US wants to talk, we will keep the door open. If they want to fight, we will fight till the end,” Wei said. “As what the general public of China says these days, a talk, welcome. A fight, we’re ready. Bully us, no way.” In the US, the stock market stumbled on Friday to its first losing month of 2019 in May, primarily due to President Donald J. Trump’s decision to broadly wield his tariff powers, first against China over trade and then against Mexico over immigration. Friday’s losses came after Trump shocked investors by announcing plans via Twitter to impose tariffs on Mexico in a bid to compel the nation’s third-biggest trading partner to crack down on migrants attempting to enter the US. “Let’s understand that trade conflicts are the catalyst for the real issue; slower global growth leading to stagf lation and recessionar y conditions,” Chris Weston of Pepperstone said in a commentary. “With the weekend news flow centering again on trade, where a Chinese white paper attributed the blame on relations to Trump, amid Chinese authorities investigating FedEx, it all suggests things will only get worse before they get better.” The move spurred a broad sell-off that sliced more than 350 points from the Dow Jones Industrial Average, which closed down 1.4 percent at 24,815.04. The selling left the benchmark S&P 500 index 6.6 percent lower for the month as it lost 1.3 percent to 2,752.06.
It’s the first time the S&P 500 has dropped for four straight weeks since autumn 2014. The Nasdaq slid 1.5 percent to 7,453.15. The Russell 2000 index of smaller companies gave up 1.4 percent to 1,465.49. The new tariffs on Mexican goods shocked investors who were already nervous about a global trade war crimping economic growth. It’s especially hard on automakers that import vehicles from Mexico. Investors have been fleeing to safer holdings all month. The shift to utilities and bonds quickened earlier in May after the US and China broke off negotiations. The US then pushed more tariffs on Chinese goods along with a ban on technology sales. That prompted retaliatory tariffs from China and threats over supply flows of rare earths and other key resources. The flight to safe havens has pushed the Japanese yen strongly higher against the US dollar. On Monday the dollar was trading at ¥108.26, down from ¥108.28 late on Friday. Until late last week, the dollar had been trading at about ¥110. The euro rose to $1.1172 from $1.1170 late Friday. Increasing uncertainty over the economic outlook has drawn energy futures sharply lower. Benchmark US crude oil gave up 54 cents to $52.96 per barrel in electronic trading on the New York Mercantile Exchange. It tumbled 5.5 percent to settle at $53.50 a barrel on Friday. Brent crude, the international standard, skidded 90 cents to $61.09 per barrel. It closed 3.6 percent lower on Friday. AP
Wall Street warns of mounting recession risk from trade war
W
ALL Street’s biggest banks lined up to warn investors of growing recession risks from the escalating trade war between the US and China. A global recession could start w ithin nine months if President Donald J. Trump imposes 25-percent tariffs on an additional $300 billion of Chinese exports and Beijing retaliates, according to Morgan Stanley. Separately, JPMorgan Chase & Co. said the probability of a US recession in the second half of this year had risen to 40 percent from 25 percent a month ago. “Recent conversations with investors have reinforced the sense that markets are underestimating the impact of trade tensions,” Chetan Ahya, chief economist at Morgan Stanley, wrote in a report. “Investors are generally of the view that the trade dispute could drag on for longer, but they appear to be overlooking its potential impact on the global macro outlook.” Such warnings may set the tone for financial markets and will inform this week’s gathering in Japan of the Group of 20 finance chiefs. The potential for a marked slowdown in the world economy was underscored on Monday by weakening manufacturing gauges across Asia. “Globa l g row t h now look s likely to slip below trend for the rest of this year,” JPMorgan Chief Economist Bruce Kasman and colleagues wrote in a report. Also sounding the alert, economists at Goldman Sachs Group
Inc. said they now expect the US to impose 10-percent tariffs on the remaining $300 billionworth of imports from China and on all Mexican goods, too. The bank lowered its US second-half growth forecast by about half a percentage point to 2 percent and said its sees a greater likelihood of interest-rate cuts from the Federal Reserve. “While it is a close call, the outlook has not yet changed enough for cuts to become our baseline forecast,” Goldman analysts led by Chief Economist Jan Hatzius said in a note. The rift between the Trump administration and China has escalated as each side blames the other for the breakdown in talks. The trade war is also taking on a global dimension amid simmering tensions bet ween the US and the European Union, while Trump is threatening to impose tar iffs on Mexican goods in response to il lega l immigration. Morgan Stanley’s A hya advised clients that if the conflict continues, growth will suffer as costs increase, customer demand