Ok Google, what is a trade war? According to Google Trends, Canadians have drastically increased their searches for the term “trade war” in the past few weeks, resulting in the concept attaining peak popularity status. Additionally President Trump and Prime Minister Trudeau had very contrasting rhetoric at the G7 summit on the weekend. With U.S. and Mexican elections looming it is quite possible the NAFTA headlines may continue into late 2018. A very helpful and very important global comparison was done very recently by Eric Lascelles, Chief Economist at RBC Global Asset Management, and his team. They calculate the Worst Case Trade War Scenario between the US and China as only a 10% probability at this point, and that it would have an negative economic effect of approximately -1.0% and -1.6% respectively. Calculations show a negative effect at 25% and slightly negative at 35%, with the corresponding economic effects of -0.3% and -0.1% each. Neutral and Best Case outcomes are calculated at 15% each.   While these odds are not what we would prefer, there is a great deal of noise included due to Trump’s strategy of keeping his opponents off balance in hopes of obtaining concessions from them. The analysis would indicate that quite a bit of protectionism is required before global growth is truly impacted. Eric believes that actions announced to date are more than offset by recent tax cuts in the US. We acknowledge that recent developments seem negative yet believe the prospect of an all-out trade war remains unlikely. However, it is a risk we are closely monitoring.

 

This Past Week; Even though returns last week were less than they would have been due to these trade war concerns, and international markets were mixed because of it, North American markets were still positive. The TSX was up 1.0%, while the DJIA and SP500 were up 2.8% and 1.6% respectively.

 

The Weekend/Weather; The week would appear to be quite nice weather wise. It looks to warm up as it goes possibly even hitting 80F/25C for the weekend. No doubt that will mean lots of options of warm weather things to do for a great week and Father’s Day weekend!

 

 

 

Global Insight WEEKLY

Short story

June 7, 2018

 

Global Insight Monthly

In conversation: Paying attention to the yield curve

June 2018

 

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