President Donald Trump has threatened tariffs on cars made in the European Union, which would slam a German economy (No. 4) that’s already suffering from reduced demand for its products from China.
If nothing changes, the United Kingdom (No. 6) will leave the European Union on October 31 without a deal to maintain tariff-free trade. That would plunge the country into recession and crash the pound.
The dire state of trade relations between the world’s largest economies bolsters the case for big central banks to take action to support growth.
The US Federal Reserve has done just that, cutting interest rates on Wednesday even though the US economy is strong, domestic unemployment is historically low and consumer confidence is high.
That came one week after the European Central Bank hinted it will unleash more stimulus. The bank is expected to move interest rates even deeper into negative territory in September.
Some analysts have questioned whether economies that are not in recession really need the stimulus. They argue that central banks should instead hold their fire and prepare for the next crisis.
Fed chair Jerome Powell cited trade tensions as one of the big reasons why a rate cut was needed. Events at the end of last week suggest his concerns were on target.
The Bank of England last week cut its forecasts for UK growth because of “profound uncertainties” about the global trading system and the risk of a disorderly Brexit. The central bank said it’s ready to respond to a shock if needed.
India’s central bank is up next, on Wednesday. Shaktikanta Das is expected to become the first governor of the Reserve Bank of India to deliver four rate cuts in the first four meetings of his tenure. India is also caught up in its own trade spat with America and is feeling the impact of the global slowdown.
Analysts at Capital Economics said the US-China trade war is likely to escalate further because Chinese President Xi Jinping won’t give into US demands and change industrial policies that have helped China.
“As such we expect the tariffs to go ahead and furthermore that they will be raised, to 25% on all Chinese goods imports to the US, before long,” the analysts wrote in a research note.
2. Ticket to ride: Uber (UBER) and Lyft (LYFT) thrived for years on the private market by raising, and burning through, billions of dollars in venture capital.
Now, they both need to prove to Wall Street that there’s at least a viable road to profit, someday.
Lyft and Uber are set to report earnings for the quarter ending in June — and all eyes will be on the red ink. The two companies each reported losses of more than $1 billion in the first three months of 2019.
For Lyft, that loss was primarily due to stock-based compensation and other expenses from its IPO. The company has tried to reassure investors by predicting that 2019 will be its “peak loss year.”
For Uber, the losses could get worse before they get better. The company, which went public in May, will recognize the expenses associated with its IPO in the quarter it’s about to report.
There have also been worrying signs for investors in the days leading up to the earnings report.
Lyft’s chief operating officer departed the company, just a year and a half after joining. And Uber announced that it is laying off 400 people on its marketing team.
3. Coming this week:
Monday — US ISM Non-Manufacturing Index; HSBC (HBCYF), Tyson Foods (TSN) and Marriott (MAR) earnings
Tuesday — Disney (DIS) and Papa John’s (PZZA) earnings
Wednesday — Reserve Bank of India rate decision; US crude oil inventories; SoftBank (SFBTF), CVS (CVS), Lyft (LYFT), Roku (ROKU) and Zillow (Z) earnings
Thursday — China imports and exports; AMC Entertainment (AMC), Viacom (VIA), CBS (CBS), Activision Blizzard (ATVI), Uber (UBER) and Yelp (YELP) earnings
Friday — China inflation data; Japan GDP; US Producer Price Index