Quick News Spot

'Phoney trade war' may be ending


'Phoney trade war' may be ending

After a period of relative calm through the Northern summer, businesses are bracing for a nervier winter, a return of trade and economic uncertainty, and higher financial market volatility to boot.

In some respects, the last few months may have been a bit of a phoney trade war -- not unlike the eight-month "Phoney War" after the start of World War II in 1939, when no major military activity actually took place.

As most US tariffs only really hit in earnest from August, government data has yet to pick up any lasting impact, and the shutdown dropped a veil on all new releases two weeks ago.

Not only does that inject considerable fog into the piece, it also raises the jarring prospect of numerous economic releases hitting markets all in one go -- whenever government is allowed back to work.

Everyone from the Federal Reserve Chair down to Wall Street economists is still unsure about just how the biggest US tariff rises in a century will pan out.

What's more, US President Donald Trump's use of executive orders allows him the ability to shift tariffs at will to wring concessions from overseas countries on any economic, political or social development he feels strongly about.

The dramatic resumption of 100% China tariff threats late last week speaks a lot to that -- teeing up a tense two weeks to a new Nov 1 deadline.

In other words, the idea that the trade shock has happened and is now bedding down as a given may be wide of the mark.

Indeed, global bodies monitoring the process fear the real hit from the tariff sweep will only show up next year. Even though the International Monetary Fund this week said the world economy likely dodged the worst-case scenario outlined in the spring, the World Trade Organization has slashed its forecast for world goods trade growth next year to just 0.5% from a prior estimate of 1.8% in August.

"The outlook for next year is bleaker," Director-General Ngozi Okonjo-Iweala said last week, adding some of the surprise resilience this year was largely down to furious front-loading of imports to beat the crunch and the real hit may now simply have shifted to fall squarely on 2026.

For US small businesses, anxieties that seemed to dissipate over the summer are back on the rise. The National Federation of Independent Business monthly survey showed sentiment falling in September for the first time in three months, and the poll's "Uncertainty Index" jumped seven points to 100 -- the fourth-highest reading in over 51 years.

The share of business owners expecting better conditions over the next six months plunged 11 points to 23%, with prices rising and orders waning.

A point highlighted by the NFIB itself is overall GDP growth and broad stock indexes are being flattered by the torrent of investment flowing into artificial intelligence and AI infrastructure -- overshadowing what's really going on Main Street.

The push and pull of those parallel universes is starting to re-inject considerable volatility back into financial markets too -- as investors trying to juggle the differing influences of a trade war and an AI investment boom, not to mention the messy implications for monetary policy, the threat of worker shortages from immigration curbs and a blackout on government statistics.

The remainder of October is now littered with pretty pivotal events. Oct 24 sees the release of the delayed September inflation report -- whether the government has reopened or not -- and there's a chance of delayed publication of all the postponed data reports if indeed Washington gets back to work again. And that could all hit just before the Fed meeting on Oct 29 -- which just happens to be the same day as Microsoft, Meta, Alphabet and Amazon all report third-quarter updates. Apple follows the day after. Unless it's defused in the interim, the Nov 1 China tariff cliff-edge then looms that weekend.

Spurred back into life after five months below historical averages, the VIX "fear index" of S&P 500 implied volatility is back on the rise and nudged its highest intraday levels since May this week. With bubble trouble part of daily market parlance again, a resurgence of volatility may well cut across trending markets. And regulators and global watchdogs are once again warning of the risk of a major correction.

If the phoney trade war is now over, it may be time to don hard hats. Reuters

Mike Dolan is Reuters Editor-at-Large for Finance & Markets.

Previous articleNext article

POPULAR CATEGORY

corporate

5578

entertainment

6791

research

3348

misc

6641

wellness

5583

athletics

7099