The past few trading weeks have been rough, rocky and messy for global equity markets as geopolitical factors such as trade tensions, global growth fears and Brexit-related uncertainty among many others weighed on risk sentiment.
Ongoing trade tensions between the United States and China have kept markets on high alert. Recent reports of White House economic advisor Larry Kudlov accusing Beijing of doing “nothing” to ease trade tensions ahead of the G20 meeting in Argentina next month has compounded to the uncertainty.
With optimism likely to diminish over the U.S. and China finding a middle ground on trade, prospects could heighten over the U.S. next year further boosting the tariffs on $200 billion of Chinese imports from 10 percent to 25 percent. With a full-blown trade war between the world’s two largest economies seen as a significant threat to global growth, stock markets are likely to take a massive hit.
With U.S.-China tensions remaining in sharp focus, it is easy to lose track of the other issues looming in the background. Speculation of higher U.S. interest rates has reduced appetite for equities in recent weeks with further punishment expected as the quarter progresses. It is worth noting that in a high interest rate environment, investors are likely to rush to bonds which are seen as a safer alternative to stocks.
Although optimism over the U.S. economy could revive global risk appetite which, in turn, may support equity bulls, global growth fears and slowing economic growth in China are likely to cancel this out.
China’s GDP (gross domestic product) growth came in at 6.5 percent in Q3, slower than the 6.7 percent recorded in Q2 as trade tensions with the U.S. weighed heavily on the economy. When the world’s second-largest economy sneezes, the rest of the world catches a cold and this is negative news for global equity markets.
Let’s not forget the Brexit-related uncertainty and Italian budget concerns are also chipping in towards investor risk sentiment. With under six months left until the official Brexit deadline, the Irish border issue remains a complicated puzzle and a possible deal breaker. The budget uncertainty in Italy continues to be one of the leading geopolitical factors denting investor confidence.
With ongoing U.S.-China trade disputes, global growth concerns, geopolitical tensions, prospects of higher U.S. interest rates and Italian budget woes all bubbling in the cauldron - all the ingredients for a sharp sell-off across stocks markets seem to be in place. Bears just seem to be waiting for a perfect opportunity to enter the scene.
All good things must come to an end and this may be the case for the stock markets to record a bull run.
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