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Don't be fooled by the "de-escalation" in US-China trade tensions

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      By Jean-Pierre Couture, Chief Economist & Portfolio Manager, Hexavest

      Montreal - The trade war between the United States and China is receiving a great deal of media coverage and undermining the global business climate. Even so, trade between the two countries represents less than 1% of global GDP, according to International Monetary Fund (IMF) data.

      The decision by the Trump administration to postpone the application of a 25% tariff for three months affects only a tiny piece of the global economic puzzle. The end of the business cycle, which is far more important for corporate earnings and financial markets, has been shaping the global macroeconomic backdrop in recent months.

      In the third quarter, the stagnation of the eurozone economy, abrupt slowing of investment in the United States, weak credit growth in China1 and much dimmer prospects for some technology companies confirmed this strong trend.

      Blog Image Hexavest Semiconductors Dec 7

      Moreover, the Organisation for Economic Co-operation and Development's (OECD) composite leading indicator, which provides early signals of global economic activity, suggests that the slowdown will continue into 2019.

      In our opinion, investors must look beyond the media noise and the sigh of relief that came at the end of the G20 summit, as postponing the U.S. tariffs will not be enough to turn the situation around.

      Blog Image Hexavest Indicators Dec 7

      Bottom line: For the time being, we maintain a defensive positioning because we think many investors will be surprised when the slowdown is borne out by economic data and earnings announcements at the start of 2019.