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June
22
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Week In Review

Trade

China identified $50 billion of imports from the U.S. to target with tariffs in response to the U.S. tariffs identified last week. In response to this, President Trump directed the USTR’s office to identify $200 billion in imports from China to target with additional tariffs and stated that he would direct the USTR to identify an additional $200 billion of imports beyond this if China responds to the first $200 billion. Additionally, Trump tweeted that the U.S. may impose tariffs on auto imports from the EU on national security grounds if the EU doesn’t reduce trade barriers on U.S. exports.

Our Take

This week’s developments indicate that the Trump administration is determined to use implementation tariffs and trade barriers by the U.S. as leverage to get other trading partners to change their trade practices. This approach is extremely risky and could easily lead to a situation where trade restrictions are increased rather than reduced. Such an outcome would have very adverse effects on global growth and living standards.


Oil

Saudi Arabia and Russia overcame opposition from Iran and Venezuela to get an agreement to restore up to 1 million barrels per day of production from current levels. Oil prices rallied due to the continued cohesion of the OPEC plus Russia group.

Our Take

The OPEC plus Russia cartel is making an effort to keep oil prices from rising much above $70 per barrel. The fact that the group has kept together in this decision decreases the likelihood of the production cut deal falling apart and driving oil prices sharply lower.


Municipals

California lawmakers continued to work on budget related bills after the main budget plan was approved last week. The California Senate and Assembly approved the state’s budget, due to take effect on July 1, and sent the budget to Governor Jerry Brown. Under the new budget, California will have close to a $9 billion surplus and a rainy day fund balance at the maximum allowable level.

Our Take

California has taken steps to improve its fiscal health as the state has recovered from the recession. A fully stocked rainy day fund will help provide a cushion in the event of an economic downturn in the future. As Governor Brown finishes his final term, investors will be watching closely to see how the candidates vying for governor will address future budgets.