Global risk sentiment hit by trade
pessimism
The negative
mood sweeping across financial markets late in the trading week continues to
highlight how investor sentiment remains extremely sensitive to any changes in
the narrative with US-China trade developments.
Global equities
fell for a third straight day on Friday after Donald Trump said he would not
meet with Chinese President Xi Jinping before the March 1 trade deadline. This
unfavorable development has certainly raised concerns over trade talks dragging
on beyond the 90-day tariff truce. With geopolitical risks and fears around
faltering world growth already leaving global sentiment on edge, there is a
high risk that there could be another sell-off in the markets if the United
States once again increases tariffs on Chinese goods early next month.
It is expected
that investors will be watching US-China trade headlines very close to their
radars for the remainder of February. With all the ingredients for another
round of a stock market selloffs in place, equity bears are seen jumping back
into the scene if US-China trade talks do take a turn for the worst.
The other trend
that is keeping traders on their toes is the gradual recovery of the US Dollar
that has taken place over recent trading sessions. It is difficult to pinpoint
what exactly is driving the USD recovery, but I wouldn’t bet against investors bracing
themselves for another potential escalation in trade tensions following the
comments in recent days. Another possibility is that investors have realized
that even if the Federal Reserve does push the snooze button on higher interest
rate policy in the United States, monetary and economic divergence is still in
favour of the U.S than a number of its developed peers.
Let’s put it
this way: a diplomatic spat between France and Italy is making its way across
the major news headlines at the same time as when investors are still no way
nearer to understanding what is going to
happen with Brexit in the run up to the March 29 Article 50 deadline, so it is
quite possible that investors will prefer to have the USD in their portfolio
until the necessary guidance is provided for what could happen with either the
Euro or the British Pound over the coming weeks.
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