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Global equities are down from their highs for the year on the back of US/China trade concerns but have not sold off significantly. Investors are starting to come round to the idea that US/China trade tariffs may be around for longer than expected with no sign of a resolution between the two sides.The last time Washington and Beijing locked horns, global equities sold off by about one-fifth.This time the markets are shrugged off the blustery tweets from President Donald Trump, responding to threats of escalation in tariffs.

The 10 per cent tariff currently being charged on $200bn of goods entering the US has been increased to 25 per cent.The remaining $300bn or so of Chinese goods that China exports to the US may also face tariffs.These are numbers that will start to have a notable impact on activity in both China and the US.

Why are the equity markets so unaffected by this development? Mainly because the US Federal Reserve is showing willingness this time round to pick up the pieces. In the fourth quarter of last year, the market had to contend not only with the prospect of a US-China trade war but a ‘hawkish’ US central bank that seemed to be on autopilot, taking rates up steadily each quarter.

The noises from the Fed has now completely changed. If interest rates “restrictive” was the buzz word in the corridors of the central bank last September, the word is now “patient”.The market has shifted from expecting two further rate rises this year to rate cuts! Moreover, the Fed has put off its plans to to run down its balance sheet.High levels of liquidity in the banking system are here to stay.

The key question is: can the monetary authorities really counter the political fallout from a hostile political agenda? Time will tell but it is questionable to think that the US monetary authorities can boost growth by softening interest rates with the US close to full employment.The unemployment rate is 3.6%, the lowest it has been for 50 years.There is no more easy growth to come by. Companies can not easily pull in a few more staff to meet a new order.

On this basis a successful conclusion to US/China trade talks is perhaps more important than the markets are indicating right now.


The uncertain mood has left investors seeking the safety of government bonds over the last week or so with with the key 10-year US Treasury Bond yielding 2.40 Yield-to-Maturity – compare that to the 3.25% YTM at the beginning of 2018 when the market was bracing itself for continued Fed interest rate rises.

The UK 10-year Government Bond (Gilt) yield is down to 1.05% as the break up of cross party talks around Brexit raises a ‘no deal possibility’.


The US Dollar is strong looking at its range over the last year. This is not because of an overly bright outlook for US interest rates and the US economy, as discussed. It is because the US is the ‘least rotten egg’ with growth and interest rate rise prospects around the world (especially UK and Europe) in an even more fragile position than the US.

The breakdown of Brexit talks this week has also had an impact of Sterling which at GBP/US 1.2728 is testing the currency’s lows for the year. 

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Oil: Brent Crude has risen to the $73 per barrel mark as geopolitical tension rises mainly in the form of sabre-ratting between Washington and Tehran (Iran), coupled with warnings from the International Energy Agency about a squeeze in oil supplies.

Gold: Prices remain steady around $1,280 per ounce with markets in a cautious mode but not overly ‘risk off’. Gold performs best when investors are seeking a ‘safe haven’ investment when financial markets are distressed.


S&P 500: 2870

Nasdaq: 7700

FTSE 100: 7350

Bonds – 10 Year Government Yields

US 2.40%

EU 0.00% 

GB 1.08%

Foreign Exchange 

EUR/USD  1.1200 (1 euro buys 1.1400 dollars)

GBP/USD  1.2700 (1 pound buys 1.3200 dollars)


OIL: Brent: 72.00 (dollars per barrel)

GOLD: 1280 (dollars per ounce)

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