What's going on?
US stock markets fell on Friday, as more new jobs were added than predicted in October and the US said it wasn’t as close to a trade deal with China as was previously suggested.
What does this mean?
Better-than-expected job figures and rising wages point to an economy going from strength to strength, following third-quarter growth that was surprisingly high – but could also mean higher interest rates to come, slowing down future economic growth (tweet this).
Trade negotiations between the US and China have been long and largely fruitless. The US introduced import taxes (a.k.a. tariffs) on Chinese goods earlier this year in an attempt to even out its “trade deficit” – last year, the US spent $376 billion more on Chinese products than China did on American stuff – and several rounds of counter-tariffs followed. In what might be a show of good faith, China appeared happy to acquiesce to new US sanctions on Iran – but the US hasn’t done much in response.
Why should I care?
For you personally: Hold onto your cash – you may need it.
In the absence of a deal, the US is planning to raise existing tariffs on $200 billion of products from 10% to 25% – and is sizing up new tariffs on the rest of the country’s Chinese imports, worth $257 billion. Products bought directly by consumers have – for the most part – been protected from previous rounds of tariffs. But that may now change, and the prices of some of America’s favorite Chinese-origin products, from playing cards to kids’ tricycles, will probably rise.
For markets: Cool heads may prevail.
When it’s more expensive to import items, companies face lower profits – or fewer sales if they raise prices and put off customers. Last quarter, Caterpillar and UPS – bellwethers of the US economy – complained tariffs were pushing up their costs and disrupting their customers, making sales harder to come by. Any trade deal should therefore be positive for stocks.