Last week was the most important in the financial markets this year. During the week, Donald Trump held a meeting with the leader of North Korea. This was the first meeting between the leaders of the two countries in history. Also, the Fed, ECB, and BOJ held their meetings and weighed in on the future of rates. The Fed raised rates and pointed to two more rates this year while ECB left rates unchanged and pointed to a soon ending of the QE. They pointed to a summer start of raising interest rates. The BOJ met on Friday and left rates unchanged and pointed to a lower for longer policy.
This weekend, traders were ‘digesting’ the decisions by the central banks and looking ahead of what to come.
The biggest concern during the weekend was the issue of trade. Last week, Donald Trump signed new tariffs on Chinese goods. As a response, China issued tariffs on goods worth more than $38 billion and the government pointed that future tariffs will be met by equal tariffs. The new tariffs from China gives Trump the next opportunity to implement another round tariffs. Previously, he had asked the commerce department to explore tariffs on more than $150 billion worth of Chinese goods. This will lead to a trade war, where both countries exchange tariffs, thus limiting the power of free trade.
Another major news came from Australia, which issued security concerns on Huawei. The government said that the Chinese technology giant posed a security threat in the country. As such, its devices would be limited in the country. Also, the company would miss out during the rollout of the new 5G technology. Australia argued that Huawei was owned partly by the Chinese government, which poses a national security threat. The company responded by denying the allegations by the Australian authorities saying that they were not based on facts. This is a major blow to Huawei, one of the largest telecommunications companies in the world.
In the United States, the problems in the Trump administration continued. First, reports emerged that many in the White House press team were considering quitting their jobs. The low morale in the communications team comes a few weeks after the White House started firing officials suspected of leaking to the press. In addition to this, the country seems headed towards a government shutdown, mostly because of immigration. The latest issue is on family separations in the Southern border. The White house has responded by attacking the democrats on the policy. As this goes on, the immigration bill being advanced by republicans seems headed to fail as many republicans question the utility of the border wall. All this points to a complicated political season in the coming months.
During the weekend, the crisis in Germany continued. Chancellor Angela Merkel has continued to face challenges on her immigration policies. The challenge comes from her coalition partners. All this presents trouble for Merkel, who is weakened by the lack of a majority. This means that the chancellor could be forced to another election, which will present more risks to Germany and the EU.