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Trade tensions no problem for markets

Markets believe the Covid-19 recovery is intact, despite global tensions over trade and human rights continuing to escalate.

Markets believe the Covid-19 recovery is intact, despite global tensions over trade and human rights continuing to escalate.

by
Charles Stanley

in Features

26.03.2021

This week has seen more disruption and noise over world trade. The most immediately damaging event is the accidental blockage of the Suez Canal by a very large cargo ship. Oil prices have rallied a little as tankers stay delayed in a queue, and companies worry about interruptions to their wider supply chains as they await deliveries. The longer it takes to free the vessel the more damage is done. The shipping industry is calculating whether to divert more ships via the Cape of Good Hope, adding ten-to-twelve days to the journey, increasing the cost of fuel substantially.

The week began with the news that the US had persuaded allies to join them in sanctioning Chinese officials over policy towards the Muslim minority in China. Beijing then took retaliatory action against Western politicians and officials.

Markets upbeat on recovery

Despite this continuing bad news markets, remain persuaded that there will be a good cyclical recovery this year, led by a US economy buoyed up by a monetary and fiscal stimulus of unprecedented magnitude. Recent PMIs and confidence indicators underscore the narrative. On both sides of the Atlantic surveys of opinion point to a good recovery led by manufacturing. Continental Europe is struggling with a recurrence of Covid-19 with case numbers and deaths still rising in many areas which may set back the re-opening of various services, whilst the US will be boosted by the $1,400 cheques going to most adults.

The rise of the virus again in Europe has led to further vaccine angst and rows as the EU battles to get more people vaccinated. The EU has taken powers to block exports of vaccines where they think a company is not co-operating and delivering enough to them. It has complained long and often about AstraZeneca deliveries, whilst also on two separate occasions calling into doubt what the EU officially accepts is a safe and effective treatment. It is also unhappy that the US is not exporting any vaccine from home factories.

The arrival of Joe Biden as US President was meant to herald a new friendlier and more positive phase in EU/US relations after the hostility of the Trump years. President Biden after all asserts respect for the international rules-based order and wishes to work with allies in ways that President Trump did not promote. It turns out this week that there will indeed be a new tone and new wish for common working, but there will also be a new intensity to US diplomatic pressure on the EU to do the right thing as the US sees it.

Human-rights tensions

The week began with a diplomatic success for the US. The EU agreed to join the US, UK, and Canada in imposing sanctions on named Chinese officials as a warning to China over her policy towards the Uighur Muslim minority. The EU was trying to create closer trade and investment links with China and had avoided the tough rhetoric of the US and Australia over China’s human-rights record, knowing that to be a most sensitive issue with the Chinese government. Now the EU was there alongside the Five-Eyes allies with a substantial denunciation and rebuke to China.

The President with his Secretary of State also turned their attention to the nearly completed NordStream 2 gas pipeline. President Trump had sought to prevent its construction, siding with Ukraine and Poland amongst the allies who will be disadvantaged by it. President Biden is continuing with the powers to sanction those involved in its construction. Several companies have already been deterred from business with companies building it and other companies have been warned not to participate. Antony Blinken, Secretary of State was clear in his thoughts. He said the pipeline is a “Russian geopolitical project intended to divide Europe and weaken European energy security”. He went on that it is a “bad idea” “against the EU’s own interests”.

The issues of how the West should relate to and respond to Russia and China were forced onto the agenda of the EU summit by events. The EU who wishes to take a more flexible and compromising approach to Russia and China had to accept that its main ally, the US, sees them as competitive threats, capable of cyber disruption, intervention in western democratic elections and building-up their military capabilities. The atmosphere was not improved by the need to discuss vaccines. President Biden has been successful in supervising a big increase in vaccination in the US from US production.

Economic, digital and euro matters now dominate the summit, which should prove easier than foreign policy and vaccines. President Biden dropped into the call to show his wish to work with and influence the EU, as he seeks to form stronger alliances against China and Russia. We are going to have to live with a retreat from globalisation as countries turn more to themselves and reliable allies and rebuild domestic supply chains. It is a good job there is still such a big stimulus to impress the markets and keep an appetite for shares.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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