US stocks have been trading on the defensive as the Q4 of 2019 commences. A combination of weaker than expected forward looking survey data in conjunction with the Democrats announcement that they were beginning an impeachment inquire has generated a risk off trading environment. The stock market has experienced sharp volatility, as traders begin to price in a contraction in US growth.
Trump is Defiant
The impeachment inquiry stems from a phone call that President Trump had with the President of Ukraine in late July of 2019. The publics attention to the phone call, came after a whistle blower complaint was lodged with the US inspector general. The inspector general of the US oversees compliance to government laws internally and was provided with a whistle blower complain from someone in US intelligence (believed to be part of the CIA).
The complaint said that President Trump asked the President of Ukraine to investigate Hunter and Joe Biden. Joe Biden is leading in the Democratic as nominee for the President of the United States. Trump was asking a foreign leader for help with his reelection. As bait, Trump had halted payments for ammunition that Ukraine needs to protect its borders from Russia. When the news broke about the call, the Trump administration released the notes taken of the meeting.
Trump is furious that a whistle blower leaked this information. He equates a whistle blower to a trader and believes this release is equivalent to treason. Trump continues to lash out at his political opponents on twitter and continues to say that the impeachment inquiry is a witch hunt.
More Tariffs Drive Volatility
Beyond impeachment trade negotiations continue to drive volatility. The trade issue with China are not working and the impingement on trade due to tariffs could push the world into a global recession. The US and Chinese are expected to come back to the negotiating table in early October, but the markets do not think there will be a meeting of the minds. The US wants to curb the theft of intellectual property and China sees that as part of its business model. China just celebrated its 70-year of rule by communism. Without a trade deal both parties will be economically injured. While China will bare the brunt of the economic contraction, the US will get its fair share of negative or slower growth. The last thing Trump wants to run on is a contracting US economy.
Tariffs are Spreading
The United States won a World Trade Organization decision against the EU and immediately announced that it would impose tariffs on the full $7.5 billion worth of goods authorized by the WTO decision. The rate of those tariffs will be lower, set as a 10% tariff on large commercial aircraft, and 25% on agricultural and industrial goods. New tariffs with Europe will just reduce trade and growth for the EU, which will further slip into recession. While Europe will be harmed so with the US, by a smaller extent.