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Macro vs Micro

02 August 2018 by jbchevrel

This week sees Q2 results from more than half of SnrFin index members, and those have been pretty solid so far. Indeed, the clear majority of banks/insurers have delivered higher-than-expected earnings, along with sustained strong capital/asset quality ratios. In this context, one can legitimately wonder why SnrFin is wider and why SX7E is down, this week. The answer isn’t in Q2 reports, though. The sentiment now is risk-off, I think for good reason. Higher US tariffs on Chinese goods look increasingly likely, with Trump considering hiking levies on $200B of imports from 10% to 25%. Consistently with their previous rhetoric, Chinese officials have pledged to retaliate. The puzzling thing is that one of the reasons mentioned by the WSJ to justify additional tariffs is the fast depreciating yuan. Indeed, $CNH is up 10% since March, mainly on the back of... trade tensions! Under the big assumption that Trump’s reaction function remains consistent, we will certainly see some escalation in trade tariffs by the end of the year, most probably hurting risky assets further.