Investors in the United States and elsewhere would be keeping a close watch on the quarterly results of US retailers that would start coming starting next week as well as the release of key consumer sentiment and retail sales data, because investors would be looking for signs of pressure on American consumers even as President Donald Trump prepares to impose fresh tariffs on Chinese imports.
The impact of Trump’s 10 per cent tariff on the remaining $300 billion in Chinese imports which are mainly aimed at consumer products would be closely and anxiously watched by investors and analysts. This is because these were not included in the earlier rounds of tariff which were primarily aimed at industrial and business products. The new tariffs could deal a double blow to the American economy because consumers and retailers drive about 70 per cent of the economy.
The planned new round of Trump tariffs will “disproportionately” impact consumer goods, noted Mona Mahajan, U.S. investment strategist at Allianz Global Investors in New York. She is among many analysts who are eagerly waiting to see the impact of the new tariffs.
“We’ll be watching the data particularly around retail sales and consumer confidence,” Mahajan said. “We’ll continue to monitor the softening in manufacturing and inflation as well, but more important for the U.S. economic picture is the consumer right now.”
The retail sale numbers of the US are scheduled to be released next Thursday. According to a Reuters poll, analysts and economists expect a growth of 0.3 per cent in sale except for the auto sector, compared to a growth of 0.4 per cent clocked in June.
Following Trump’s tariff announcement on August 1, a total of 5.3 per cent drop in the first three trading sessions was noted for the S&P Retail index. The index traded at 1.6 per cent lower for the month so far as of close of trading on Friday.
Also an overhang for stocks was the fear that Trump could eventually increase the tariffs to as much as 25 per cent, said UBS analyst Jay Sole. According to an estimation by Morgan Stanley, there can be a global recession if the tariffs are increased to 25 per cent.
The increased or the new tariffs would pose a dilemma for retailers because they would have to decide on whether to pass on the increased costs because of the tariff to the customers or to absorb the shock which would result in reduced profit margins for the companies.
“If you’re in a competitive environment you’re going to take some action to keep your customers,” said Charles East, an equity analyst covering consumer companies at SunTrust Private Wealth Management. he said that the tariffs would make the department stores particularly vulnerable.
“I really don’t think they can push prices up because their sales are already weak,” East said. “The margins are under pressure. Perhaps they can accelerate cost-cutting.”
Comments in earnings calls and statements about the manner in which companies in the American and footwear industry as well as retailers plant to manage the new tariffs would be eagerly looked out for by UBS’s Sole because imports from China account for almost two thirds of US footwear products. “It’s a big deal. Our assumption is that there will be an attempt to raise prices on the goods,” Sole said.
“We think consumers are going to resist those price increases,” he added referring to a survey UBS comprising of about 7,660 consumers in July which found that worries about a rise in prices because of the trade war with China was expressed by 77 per cent of respondents of the survey.
(Adapted from Reuters.com)