A significant driver of recent trading sentiment has been taken from the flows of news over the trade dispute between the US and China. This remains an issue this week and we take a look at the impact on forex, equity markets and commodities.
Q1 started with a bang as equity markets soared higher. However it ended on a particularly soar note as risk sentiment took a nose dive on the threat of escalating trade tensions between the world’s two most powerful economies. It looks as though this issue has legs and is likely to be the big story of Q2. Trump is looking to flex his muscles (and massage his own ego) through this trade spat with China. The problem is that seemingly every time China responds, they are certainly not backing down. His first $50bn of tariffs on China’s imports into the US was targeting c. 10% of the total imports. However China replied with $50bn of their own tariffs, which accounts for almost 40% of US imports into China, so relatively a much bigger proportion. Trump is considering another $100bn of tariffs, but if this is the case and China responds in kind, it would cover all US imports into China, which begs the question of what next? China targeting services or investments maybe? The market currently seems to be gambling on a 60 day consultation period for these tariffs being a time during which an amicable agreement can be reached. The lack of real reaction or reduction in risk appetite on Friday suggests that the market is still taking all this as tit for tat ahead of a compromise. Trump is businessman masquerading as a president, and loves the thrill of the deal. Looking past the noise this has to be the logical the outcome, as a trade war is something that no-one wins from.
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