World markets have been waiting months for the commercial confrontation between the United States and China. Yet, while the trade war has been the main destabilizing factor for investors at this time, the latest cross measures between Donald Trump and his Chinese counterpart have hardly disturbed the bigger picture of global trade, to the surprise of many.
Donald Trump confirmed on last week that he would impose new tariffs on Chinese products valued at $200 billion and hours later, Beijing replicated the measure by announcing levies on U.S. goods worth $60 billion. This initially hit US stocks, treasuries and the dollar while stirring a rally in Chinese equities and the yuan in Asia. China then confirmed it would retaliate, but still traders barely flinched.
Meanwhile, the response of the world markets, far from what might be expected, was more than positive. Stocks in the European Union gained more than a third of a percent, on course for a third day of gains. Wall Street futures climbed. Even copper, as well as the Australian dollar, which have been highly sensitive to the trade tension in recent months, held firm.
In Asia, some analysts interpret the confrontation as an opportunity for growth and diversification for the Chinese giant, as it could use it “to replace imports, promote localization and accelerate the development of high-tech products,” as pointed out in the state newspaper People’s Daily in an article by Reuters.
Chinese shares did dip initially as Asia digested the details, but then rallied to push the blue-chip CSI index up 2%. Some locals were betting that Beijing would step-up its infrastructure investment to keep the economy humming.
Hong Kong’s Hang Seng index rose by 1.2% to 27,407 points last Wednesday and reached a two-week high, while in Japan, the Nikkei closed with a 1.08% increase and the country’s second indicator, the Topix, gained 1.46%.
Japan’s Nikkei also ended 1.4% higher and MSCI’s 24-country emerging market index was up for the fourth day in the last five as a 1% gain in Poland and a 0.7% rise in Russia added to Asia’s rebound.
In the US, Wall Street closed last Tuesday with a positive sign and halfway through the session, the Dow Jones index reached historic highs, rising 0.7%. In Europe, the main indices closed last Wednesday with gains and, except for the London Ftse 100 (+0.29%), all accumulated revaluations above 1% in the last week alone: the Paris Cac 40 (+1.14%), the Frankfurt Dax (+1.55%), the Ftse Mib (+1.51%) and the EuroStoxx 50 (+1.29%).
Profits from industrial stocks and consumer discretionary stocks, sectors that work great when the economy is robust, also reflect investors’ priorities. Bullish economic data and corporate earnings have been driving market earnings for some time now.
Market analysts think that investors are opting to focus on these factors. There are also enough reasons to think that the impact of the trade war on global growth may not be as damaging as expected. They also believe that the dispute will be resolved amicably before global markets feel any perceptible impact.
It also sends a positive signal that China will remain in the Washington-sponsored negotiations, although this situation could change at any time. The forecasts do not predict that the confrontation between the two powers will relax in the short term, but are skeptical that they can affect global economic growth or that of the US in particular. Hence, they maintain their positions.
Along the same lines, the analysts of the American management company Legg Mason, consider that the economic impulse of the US is a more tangible reality for the markets than the commercial war. In a recent comment, the firm’s experts said that the mantra of the latest US economic data has been higher than expected.
In September, jobs, profit growth and Friday’s industrial production figures have been above expectations, they say, and it is those figures, not the eye for an eye on the trade war, that have had the most influence on the markets.
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