Here’s why stock-market investors don’t care about trade wars and North Korea

  • Written by MarketWatch
  • Published in Economics

Investors remained nonchalant about rising prospects of a global trade war following a weekend summit meeting of Group of Seven leaders that ended on an astoundingly bitter note. It could be that traders simply have bigger concerns, some of which might come into play as a week jam-packed with potential market moving events gets under way.

On Wall Street, the S&P 500 SPX, +0.30%[1] up 0.4% and the Dow industrials DJIA, +0.21%[2] advancing by the relatively same proportion.

The week ahead brings a summit meeting between Trump and North Korean leader Kimg Jong Un on Tuesday in Singapore, the conclusion of a two-day meeting of Federal Reserve policy makers on Wednesday that’s seen as a lock to deliver a quarter-point rate increase in the fed-funds rate; and a Thursday meeting of the European Central Bank that could result in a timetable for eventually winding down its monthly bond-buying program. There are also developments in the U.K.’s Brexit process and a Bank of Japan policy meeting to round out the mix.

So what’s most likely to move markets? Here are a few guesses.

Trade fallout

First off, why aren’t investors freaking out about the escalation in trade tensions as the Trump administration prepares for a range of talks, including negotiations with China and a crucial stage of talks on the North American Free Trade Agreement, or Nafta?

Don’t get the wrong idea. It isn’t as if markets are ignoring macro headlines, said Michael Arone, chief investment strategist for State Street Global Advisors. After all, just two weeks ago, global financial markets were temporarily thrown into turmoil[3] by worries surrounding the formation of Italy’s new government.

And while there has been “a lot of tough talk and scary headlines around trade” in recent weeks, there hasn’t been much follow-through, said Arone, in a phone interview, leaving investors to pay closer attention to underlying data that points to a strengthening U.S. economy. Moreover, even in a scenario that sees, for example, a hit of around $50 billion, the tax cuts and spending plans enacted late last year and in early 2018 are still much larger, he said.

Trump-Kim summit

If that dynamic holds true, it would seem unlikely that the outcome of the Trump-Kim meeting would hold much sway over the market given the limited tangible economic impact.

“While the outcome of tomorrow’s summit between President Trump and Kim Jong Un is hard to predict, neither a breakthrough in talks nor another verbal spat between the two leaders would probably make much difference to equity markets in the medium term,” said Oliver Jones, economist...

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