Trade War Truce
Great news! Over the weekend a trade-war truce was made between China and the United States. This truce puts a hold on an additional $300 billion worth of new tariffs. However, there’s still some uncertainty due to there still being tariffs that remain in place which could continue to cause a lot of pain for both countries and their economies. Our attention will now turn to the Fed. We wonder if the Fed will look at the truce and say that they might not need to cut rates as much as they planned. They also could decide to remain data dependent as they have been and if that’s the case, we will continue to see the pain and they will continue the thought process of thinking they will need to cut more. The market is anticipating that the Fed will cut rates. If they don’t, that would be a shock to the market and something to watch. A fun fact leading into July 4th is that 86% of our fireworks are imported from China. That provides you a little table talk to throw out during talks with family and friends over the holiday. There is a concern that firework prices may be up this year.
South American Deals
On Friday the European Union and four major economies in South America including the top two Argentina and Brazil, formed a massive trade pact called Mercosur. What’s interesting about the deal is that it will cover 780 million people in the world which is about 25% of the world’s economy. The trade wars and trade war conversations are not just going on between the U.S. and China, there’s a lot more to be on the lookout for. The reason that this formation was done is that Europe has dominance in high tolerance machinery exporting, along with Germany. Latin America has a lot of agricultural exporting. To bring all of that together in one alliance is powerful. Why are these countries pulling together? We’re seeing trade alliances formed around the world that typically wouldn’t be expected but for them specifically, it makes sense geographically and for revenue flow. These alliances are something we are watching to see if any of them will have an impact on portfolios.
Gas Price Hike
You should start to see some spikes in gas prices, which regrettably is happening at a horrible time during a holiday week. While the U.S. and China are meeting, OPEC also met and agreed to extend their production costs which have extended the rally in oil prices. Oil was up around 15% in the last few weeks. Locally, in some places, we’ve seen prices go from around $2.12 per gallon to around $2.40 per gallon. The price at the pump has been rising and we expect it to continue to rise. As you’re driving around during July 4th you may take a little bit of a bigger hit to your wallet when filling up your gas tank. The U.S. consumer, which already had a falling sentiment, could see sentiment drop even more with having to spend a bigger percentage of their budget on the rising gas prices.
With all the U.S. and China trade war talks along with oil prices, we are starting to see the impact trickle down to consumer confidence. At the same time, though, reports showed that consumer spending increased 0.4% for the month of May. That included vehicle purchases, restaurant visits, and hotel accommodations. We are seeing spending in leisure activities. While consumer confidence is reportedly down, we’re seeing consumer spending rise. Personal income is also on the positive side and reportedly increased 0.5% for the month of May which collectively comes to around 10 billion dollars that will go back into the economy. We might see some consumers staying away from the gas stations and fireworks due to recent price hikes, but besides that consumer spending is on the rise.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.