The ongoing global trade drama between the United States and China has kept the markets on their toes. The U.S government has repeatedly played down fears of a trade war with China, but much of the current unease seems to stem from anticipation of how the world’s second-largest economy will react to President Trump’s ongoing provocation.
Investors were left with a sour taste in their mouths come early April after China imposed tariffs on 128 U.S. food imports worth $3 billion. Both the Dow and S&P took a hit as a short-lived sell off swept across the New York market. Trade war anxiety is certainly weighing heavily on risk sentiment, and one more doom-mongering headline could be enough to spark another market-shaking selloff.
While U.S.-China tensions are gripping the headlines, it’s easy to lose track of the more mundane issues lingering in the background. Fears of rising interest rates and global inflation have bruised equity bulls in recent weeks and the bout may well continue for another round (or three or four) as the quarter progresses. In a high interest rate environment, investors are likely to be more attracted to bonds which are seen as safer than stocks. A rise in global inflation could also prompt a flight to zero-yielding gold.
While optimism over fiscal developments in the U.S. (such as tax cuts and increased infrastructure) may rekindle risk appetite and pep up the equity bulls, I’m expecting gains to be limited throughout Q2. The positive impact of tax cuts could be overshadowed by the negative effects of a global trade war, ultimately spelling trouble for stock markets.
Worries over tightening regulations in the tech sector put pressure on the Nasdaq at the close of Q1. With Mark Zuckerburg set to testify before Congress this week, Trump’s very public Amazon-bashing in full flow and Tesla struggling to meet its own production targets, we could see investors reevaluate the price they’ve been paying for tech shares.
And let’s not forget oil. Persistent oversupply concerns put the commodity in a prime position to punish the stock markets. Soaring production from U.S. shale continues to blight OPEC’s efforts to rebalance the market. A prolonged period with low oil prices also puts the profits of players like ExxonMobil, Shell and BP in jeopardy, ultimately dragging their share price lower and negatively impacting the whole market.
All the ingredients for severe losses across the stock markets seem to be in place - we’re just waiting for a catalyst to revitalise equity bears and punish their bullish counterparts in the process.
Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.
Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.
The FXTM brand provides international brokerage services and gives access to the global currency markets, offering trading in forex, precious metals, Share CFDs, ETF CFDs, and CFDs on Commodity Futures. Trading is available via the MT4 and MT5 platforms with spreads starting from just 1.3 on Standard trading accounts and from 0.1 on ECN trading accounts. Bespoke trading support and services are provided based on each client’s needs and ambitions - from novices, to experienced traders and institutional investors. ForexTime Limited is regulated by the Cyprus Securities and Exchange Commission (CySEC), with licence number 185/12 and licensed by the SA FSB with FSP number 46614. Forextime UK Limited is licensed with the UK FCA, number 777911. FT Global Limited is regulated by the International Financial Services Commission (IFSC) with license numbers IFSC/60/345/TS and IFSC/60/345/APM.
Any opinions expressed here are the author’s own
Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.
© Opinion 2018