Shipping
The shipping data is interesting. US container imports for May were down 7% through all ports. US shipping exports (including non container traffic) were similarly weak. The Port of LA data continues to show a bid drop in container imports 3 weeks away. But like the bow wave of a boat it keeps getting pushed forward and never happens. So it's more about berths being booked at the last minute than an economic downturn. What is interesting is that Drewry's global container rates dropped 5.7% last week, driven mainly by Shanghai to Los Angleles bookings. Rotterdam congestion also depressed EU rates. But the real story is that Drewry's Inter-Asian Container Cost Index was up 15% in the fortnight to June 25th. What this tells me is that China is exporting to Asia what it cannot export to the US.
Trade & Tariffs
I don't expect a big blow up this week. Overall the US 10% tariff on almost everybody is likely to stay in place. There are three areas that matter. The EU is likely to keep existing tariffs imposed by the US but set a framework for future negotiations. EU Tariffs on manufactured goods will be set at 0%. There will be nothing on agricultural trade. There will little if any reprisals. There may be some carve-outs by the US- like automobiles. Japan may be singled out but real negoitiation with no ground given on key areas like steel and auto by the US side. Real negotiations will only begin after the Upper House elections on July 20th. Korea is a similar story. It may get hit by the US. But it has only just got a government. So again negotiations will be protracted. The current average effective tariff rate is 15.8% compared to 2.5% when President Trump took office. This week's White House letters will raise it to 16.5% - 17%. The increase is less important than the level of tariffs which will cause economic damage which we have not yet seen. Bottom line: no immediate panic.
Geopolitics
The withdrawal of US military aid to UKraine creates a void which cannot be plugged by the Europeans, It makes a breakthrough on the front by the Russian quite likely. If that happens Putin will have won his war. Putin will not de-escalate to reconsitute his forces for a few years. He will seek to test NATO Art 5 by some form of reversible (if things don't go his way) but significant escalation in the Baltic Sea before the end of the year. If the US backs away from honoring Art 5 NATO will be dead. That is unlikely to leave markets indifferent. The hope lies in that the halt in supplies stems from the Pentagon (Hegseth & Colby) and not from Trump. Trump has woken up to what Putin means but cannot reverse his policy without admitting he got it wrong. So stasis....and stasis is bad.
Reports that President XI's power is waning lack evidence. The Chinese bureaucracy shows none of the usual symptoms of impending regime change. And President Xi is unlikely to be planning his own succession as his power depends on being indispensable.
End
.