16 May 2019

Whither the Dragon?

Brexit might have faded into the background, so far as current market influence is concerned, but it is far from completely absent.


True, the Sino/US trade talks are now taking more of a centre stage position, but even that is not the whole story. President Trump’s decision to more than double tariffs on a range of Chinese goods produced less of an immediate reaction in markets than might have been expected, but shares came under pressure following China’s retaliatory measures. The sell-off was swift and significant, though bargain hunting brought a useful partial recovery.

However, China subsequently reported a further slowdown in economic growth. The importance of these developments should not be underestimated. The IMF has already warned that global growth could well be impinged if an agreement is not forthcoming and is clearly concerned over the contribution from the world’s second largest economy. President Trump has said he still expects a settlement to be reached and no doubt will be influenced in some measure by the markets’ more recent reaction. The good news, if there is any, must be that the higher tariffs will not kick in for a couple of weeks, allowing time for common sense to prevail.

Otherwise market influences are relatively thin on the ground. Brexit continues to linger in the background, with no sign of a cross party agreement falling into place and the future for Prime Minister May looking ever more uncertain. Meanwhile, the European elections are approaching fast, with the expectation that the two main political parties are in for a drubbing. This hardly adds calmness into the equation, but there are those that believe an unpalatable result for Westminster will drive MPs into seeking some form of resolution to the impasse that presently exists.

But it is clear an appetite for risk still exists, as buying on bad days exemplifies. Investors are doubtless mindful that the trade war and concerns over global growth are likely to deter central banks from further monetary tightening. Certainly, the Peoples Bank of China is expected to be more accommodating to help the economy along.  In the US a continuation of tit for tat action on tariffs is likely to put pressure on consumers, with all the attendant damage that can do to growth prospects. Back home, voters are likely to express extreme displeasure with their elected representatives in the absence of delivery on the referendum. Let us hope for an early resolution for both these problems. 


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