July 2, 2018, by Natasha Doff
Sit tight because this week is crunch time for global trade. Unless Trump backs down, the U.S. will impose tariffs on $34 billion of Chinese imports on July 6, many of them parts used in products such as marine engines and power turbines. China will impose countervailing levies the same day — including on U.S.-manufactured cars. BMW AG became the latest company to urge the U.S. not to impose tariffs on auto imports with a letter to Commerce Secretary Wilbur Ross. A top aide to President Donald Trump dismissed the concerns as “smoke and mirrors.”
Europe on edge
It’s also a make-or-break week for Angela Merkel. The German chancellor is trying to save her ruling coalition and the party bloc that’s governed Germany for most of the time since World War II as an impasse over immigration threatens to tear it apart. Joint talks in Berlin today will seek an 11th-hour compromise between Merkel’s Christian Democratic Union and its Bavarian sister party, after separate discussions that dragged into the early morning hours failed to end the standoff. Critical negotiations are also about to kick off in the U.K. as Prime Minister Theresa May seeks to settle ongoing disagreements around Brexit with a cabinet lock-in at her country estate that’s been dubbed the body bag summit by some MPs.
Asian equity markets were a sea of red with the MSCI Asia Pacific Index dropping 1.2 percent, Japan’s Topix index closing 2.1 percent lower and China’s Shanghai Composite Index slumping 2.5 percent. In Europe, the Stoxx 600 Index was 0.7 percent lower at 5:50 a.m. Eastern Time as political risks dragged the euro and pound down. Crude slid from the highest level in more than three years after Trump piled pressure on Saudi Arabia to increase output. S&P 500 futures pointed to a drop at the open, the 10-year Treasury yield was at 2.831 percent and gold was lower.
Mexico’s peso led another plunge in emerging-market currencies as the leftist Andres Manuel Lopez Obrador appeared to cruise to victory in Mexico’s presidential election. Early vote counts had the candidate with a commanding lead, showing a strong mandate for his policies. In a victory speech following the vote, Lopez Obrador made a point of allaying market concerns by promising to respect the central bank’s autonomy, avoid raising taxes in real terms, and stay within “legal channels” as he reviews oil deals. Dollar strength and trade tensions continued to roil emerging markets, with the yuan resuming its sharpest drop since China’s August 2015 devaluation.
While traditional carmakers worry about trade wars, Tesla Inc. has been busy shaking up the auto industry in a different way. The company built more than 5,000 Model 3 sedans in the last week of the second quarter, finally exceeding a long-sought production target critical for Elon Musk’s goal of bringing electric cars to the masses. Tesla “just became a real car company,” the chief executive officer said in an internal email Sunday obtained by Bloomberg News. It rose 4.6 percent in pre-market trading, pushing gains this year to more than 10 percent.