Wednesday, 15 May 2019

Markets rise as trade deal expected but “prolonged conflict could put a serious dent on economy”

Markets were mostly higher on Tuesday.

The S&P 500 rose 0.8 percent while the STOXX Europe 600 rose 1.0 percent.

Earlier in Asia though, the Nikkei 225 fell 0.6 percent and the Shanghai Composite fell 0.7 percent.

While the US-China trade dispute continues, Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management, said that the market still believes that “a trade deal gets done” and that “the Fed is there to put a bottom in the market”.

However, analysts at Danske Bank wrote in a note that “our concern is that it will require financial stress to create the necessary pressure to get the deal done”.

Indeed, Steve Goldstein at MarketWatch suggested that at the moment, China seems happy to walk away from trade talks.

“That’s the upshot after China first rolled back some concessions — prompting a new escalation in tariffs — and then showed up to Washington without any other compromises,” wrote Goldstein

The escalation of the trade war could turn nasty, wrote Jeff Cox at CNBC.

Cox noted that the “New York Fed’s gauge of recession probability over the next 12 months is now at 27.5%, easily the highest since the financial crisis” and suggested that “a prolonged conflict could put a serious dent into the economy of both nations, and reverberate through a global picture that at best looks tenuous”.

In contrast, Brett Arends at MarketWatch remains sanguine, saying that the tariff “amounts involved are trivial”.

Michael Brush at MarketWatch wrote that a trade deal is still “very likely to get wrapped up over the next few weeks” and that “it is time to get more aggressive about re-deploying any cash you may have raised in early May”.

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