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business week ahead

Cry ‘Havoc,’ and let slip the dogs of war

Antony, in Shakespeare’s Julius Caesar

The trade battles that have roiled financial markets will escalate this week as U.S. President Donald Trump goes to war against China, threatening more upheaval for stocks and currencies such as the yuan and Canadian dollar.

“Recurring salvos in the trade war and falling asset prices raise the question of how much tariffs could damage the global economy and what outcome markets price,” John Normand of JPMorgan Chase said.

“Simple frameworks suggest at least a 0.5-per-cent reduction in global growth from medium-intensity conflict, before accounting for tighter financial conditions and sentiment shocks,” he added in a weekly report.

“Global markets already discount this 0.5-per-cent slowdown and some [emerging market] assets price a larger 1-per-cent cut.”

It’s Mr. Normand’s “medium-intensity conflict that’s the wild card for markets.

And we may get signs of what lies ahead when the United States begins punishing Chinese exports on Friday.

What the Trump administration decides as the next move, and how Beijing responds beyond what it has already planned, will be crucial for the global economy and the markets.

“Should the administration follow through with threats of further tariffs on another US$200-billion of Chinese goods and roughly US$40-billion of [European Union] auto imports, and these threats are met with reciprocal measures, real GDP growth could be dented by several tenths,” Deutsche Bank economists Brett Ryan, Matthew Luzzetti and Justin Weidner said in a report.

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Foreign Affairs Minister Chrystia Freeland visited Stelco in Hamilton on Friday, where she met with employees in the cold rolling plant and announced the government's latest efforts in response to U.S. tariffs on Canadian steel and aluminumPeter Power/The Canadian Press

Where Canada is concerned, the United States has slapped tariffs on imports of steel and aluminum, and Ottawa fired back last Friday with levies on a range of American products and aid for the affected Canadian industries.

The EU and others are also in a tit-for-tat battle with the United States.

“Although President Trump’s tariffs on metals are aimed at promoting expansion in manufacturing stateside, the extent to which metal is used as an input to production will result in varying degrees of harm to producers’ margins across manufacturing sub-industries,” Katherine Judge of CIBC World Markets said.

“Indeed, the U.S. imports almost 50 per cent more primary metals than it manufactures, using them to produce a range of goods including electrical equipment and furniture,” she added.

“That comes at a time when rising energy prices and wages are already pressuring profit margins. Add to that the threat of retaliatory tariffs on U.S. exports, and a trade war is far from a win for U.S. equities.”

An even broader trade war would have more severe consequences, obviously, and such a scenario can’t be ruled out, particularly amid U.S. threats to employ the big guns and punish auto imports.

We’ll see, too, what the latest numbers show when the United States and Canada report their May trade performances, also on Friday.

Economists expect to see that the U.S. trade deficit narrowed to somewhere less than US$44-billion, as much stronger export levels eclipsed the rise in imports.

That will do little to ease Mr. Trump’s concerns.

“Export performance and record-high two-way trade flows appear poised to slip in the months ahead,” said Bank of Montreal deputy chief economist Michael Gregory.

“The U.S. dollar has been strengthening; in June, the broad trade-weighted index averaged 5.3 per cent above its January low or 1.1 per cent year over year. And, global trade protectionism is escalating.”

On the home front, observers believe Statistics Canada’s report will show a fatter trade gap, in the area of $2.5-billion.

“Looking ahead, [Canadian dollar] depreciation should provide a sizeable tailwind to exports over the coming months though steel/aluminum tariffs will start to weigh on exports and imports in June and July, respectively,” Toronto-Dominion Bank economists said in a lookahead.

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Aside from trade, it’s not a particularly busy calendar this week, although Friday also brings the widely anticipated U.S. and Canadian Jobs reports. What to watch for:


If you’re Canadian, forget about trade wars for a day and have a cold one. It’s the Canada Day long weekend, and the Toronto market is closed, so enjoy it.

Outside Canada, markets will get the latest picture of the world’s manufacturing industries, with purchasing managers indexes (PMIs) rolling in.

“Recent data from the manufacturing sector have continued to look a little on the weak side, particularly in France and Germany,” said CMC Markets chief analyst Michael Hewson.

“This week’s June PMIs may well continue the weaker trend seen since the beginning of the year, with rising input costs appearing to weigh down economic activity, not to mention the ongoing uncertainty over tariffs starting to slow down decision-making on future investment.”

The U.S. reading isn’t expected to change all that much.


Not a lot, although U.S. factory orders are expected to show a small dip for May.

And our mates in Australia will be watching as the country’s central bank is expected to hold its key rate at 1.5 per cent.


U.S. markets are closed, so toast our American friends and stay away from Mr. Trump’s Twitter feed and any further insults against Prime Minister Justin Trudeau.


This could be an interesting day because markets always want to know what the U.S. Federal Reserve is thinking.

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Federal Reserve Board chairman Jerome PowellCliff Owen/The Associated Press

And, thus, expect a focus on the afternoon release of the minutes from the U.S. central bank’s mid-June meeting, when it raised its benchmark rate again, by one-quarter of a percentage point.

“The latest minutes should outline whether the Fed is concerned about an inflation overshoot and whether it has any concerns about the current uncertainty around trade, which might derail these plans to raise rates another five times by the end of 2019,” said CMC’s Mr. Hewson.


Hold off on the TGIF beer until after morning is done.

Along with tariffs and trade reports come duelling Canadian and U.S. jobs releases.

You can never really know what to expect from the monthly Canadian reports. But economists believe Statistics Canada’s morning report will show a gain of anywhere from 10,000 to more than 20,000 new jobs in June, with unemployment holding at 5.8 per cent.

“The up and down nature of employment this year reminds us just how volatile these survey results can be,” said Royce Mendes of CIBC. “Business plans are for more hiring ahead, but whether from rate hikes or other drags on growth we’re sitting near the lows for the jobless rate in this cycle.”

Observers expect the U.S. report to show a June increase of between 180,000 and 200,000, with the jobless rate steady at just 3.8 per cent.

Okay, now go for it. Cheers.

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