Via UBS today:
UBS View: Prices lowered modestly as trade wars escalate
Trade tensions have escalated. Following the first round of new tariffs on two-way trade, the US has identified another US$200bn for a 10% tariff, potentially from September. Our China, US & ASEAN economists’ downgraded growth. Higher trade barriers equal lower trade volumes & industrial output, leading commodity price lower in the absence of offsetting stimulus. China is expected to stimulate domestically, focussing on infrastructure; FAI growth has been revised higher, which will provide important support for commodity demand as trade slows. Recent credit market signals suggest China’s credit markets are easing. Our base case is cut modestly as markets price lower growth & a firmer US dollar. Our downside scenario continues to represent an all-out trade war. Our upside now represents a negotiated reversal of trade barriers.