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.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
