It is all about US China trade war

Despite Friday’s sharp recovery on Wall Street, the new week has started with sharp falls for global equity markets, including US index futures, the yuan and other emerging market currencies. Once again, the common denominator behind all this is concerns over the economic fallout over the US and China’s ongoing trade spat. Donald Trump took to Twitter once again this morning, warning that "China should not retaliate - will only get worse!" At the weekend the US President warned China to secure a deal now as the terms will be a lot worse if he is re-elected in 2020.

Judging by Trump’s tweets alone, the two nations are apparently nowhere near signing a trade deal. And for the markets, this is all that matters right now. Thus, for sentiment to improve again, Trump’s tone towards China will need to improve first and foremost. Tweets about being “close” to an agreement would almost definitely help. But the markets are also wary of the possibility that despite everything the two sides could reach an agreement unexpectedly soon. After all, that is in the best interest of both nations and the stock market hawk Donald Trump. So, we think the losses could be limited until such a time that this either turns into a full-blown trade war or an agreement is reached.

Unfortunately, there’s only a handful of potentially market moving macro events to look forward to this week, which means it is all about US-China trade war this week. For a more in depth analysis of what the US-China trade war could mean for US stocks, please refer to my colleague Matt Weller’s report on S&P 500 HERE. Below is a daily chart of the Nasdaq 100 proxy, suggesting the markets will gap lower when Wall Street opens for trading later.

Source: TradingView and Please note, this product is not available to US clients

Related tags: Indices

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