Even if Trump and Xi make up at G20 in Buenos Aires, don’t hold your breath for a meaningful market rally
- Nicholas Spiro says the declines across asset classes indicate that trade tariffs are just one of the factors depressing investor sentiment
Are US President Donald Trump and his Chinese counterpart about to offer some much-needed relief to financial markets?
While it has become difficult to untangle the complex web of factors that have contributed to this year’s dramatic falls in asset prices – there have been simultaneous declines in bonds and equities which, according to data from JPMorgan, have resulted in the broadest losses in markets since the stagflation episodes in the 1970s – the rapid escalation in trade tensions between the US and China is an obvious culprit.
In global markets, the role of trade tensions as a key determinant of sentiment has been even more ambiguous.
The most recent declines in asset prices, initially dubbed “Red October”, have shown the extent to which trade tariffs are merely one of a number of vulnerabilities responsible for what Morgan Stanley aptly calls a “rolling bear market”.
While emerging market currencies and stocks have risen since the end of last month, partly on hopes that Trump and Xi will find common areas of agreement to help ease tensions, the fact that nearly all major asset classes are in the red shows that stresses in markets run much deeper than trade tariffs. As JPMorgan rightly noted in a report published on November 16, “in the context of G20 hopes that intuitively should support all risky markets, the declines in tech stocks, oil and high-yield [bonds] in recent weeks are notable”.
All this suggests that the bar for a meaningful rally is high. Even if the outcome of the Trump-Xi meeting exceeds investors’ expectations – a distinct possibility given how low they are to begin with – there are simply too many problems plaguing markets right now for sentiment to improve significantly.
While global bond and equity markets, which this year have suffered their sharpest combined loss since the 2008 financial crisis, are desperate for good news, it will take a lot more than conciliatory words in Buenos Aires to lift the spirits of investors.
Nicholas Spiro is a partner at Lauressa Advisory