Market Watch

Short piece of admininistration to start. Several states have a public holiday today, with Victoria, South Australia and Tasmania all away from the trading floors. That means volumes are likely to be lower and may impact pricing. Something to be aware of.

However, the real impactor on markets this week is likely to be offshore geopolitics, just like last week.

But first, onto the economic leads for the week. Both the NAB business confidence survey and the Westpac consumer confidence surveys are due.

The confidence gap between the ‘firm’ and the ‘individual’ has been rather large for some time. Both business confidence and conditions have well and truly outstripped its consumer counterparts. The optimism in business has been justified. Australian-listed firms have just reported their best half-year earnings in the post-GFC era. However, that business growth, as yet, hasn’t translated into individual wealth as one would normally expect.

Consumer confidence has actually registered as ‘optimistic’ (above 100) for the past five months as stability in employment, wealth and the overall economic landscape have filtered into the consumer psyche. This was seen in the GDP figures released last week where consumption added 1 per cent to the GDP figures due to a very strong increase in discretionary spend.

Both surveys are reflecting confidence for the year ahead. The optimism in both the business and consumer environments is filtering into consumption and investment which, in turn, is bolstering economic growth.

However, as touched on above, this week is more than likely to be dominated by geopolitical interference.

Friday’s announcement from the White House that nations have 15 days to ‘pitch’ why they should be exempt from the tariffs is the starter gun firing the opening shot in a new global trade war.

In effect, it has now made the White House the single largest risk to global economic prosperity. Trade wars have begun. The question is, how will they end? The answer is unknown.

Make no mistake this is the start, not the end. President Donald Trump made a shot across the bow of nations such as Germany and its ‘favourable free trade’ with the US and its ‘unfair’ advantage in manufactured goods (specifically auto manufacturing). Trade tariffs are all part of Trump’s ‘America First’ policy.

If the US was to bring in manufacturing tariffs on sectors such as automotive, aeronautical and machinery, the impact on global GDP would be dramatic – some estimates suggest that tariffs of this kind would cause global GDP in value term to decline by 25 per cent.

What’s more interesting is the impact that tariffs will have on individual nations. The political response on a nation-wide level goes something like this: “We will protect our (insert nation here) workers and our (insert nation here) industries”. The Canadian trade minister used this exact phrase in response to the steel and aluminium tariffs (something Canada is already exempt from due to NAFTA).

Now let’s stop and think for a moment what the political communications coming from other nations and states could be – looking specifically to China here.