“Investors are expressing confidence that a solution will be found before a full blown trade war erupts.”
After staging a strong recovery on Wednesday, U.S. equity markets are poised to open in the green once again on Thursday as investors temporarily shrug off trade war fears.
The bounce on Wednesday was really quite impressive, especially as there was not much of a catalyst for the turnaround given that neither the U.S. or China is backing down on tariffs and negotiations were always going to take place in the background. Perhaps the fact that indices were once testing levels that had previously been bought on a few occasions over the last couple of months had something to do with the sudden desire to jump back in.
The reality is that a trade war remains a real possibility. U.S. President Donald Trump is looking to pick a fight with the world’s second-largest economy, a fight he believes is easy to win, and China is willing to go toe to toe with the U.S. even if it means inflicting harm at home. It’s hard to see how anyone wins in this but investors currently, despite the declines we’ve seen, are expressing confidence that a solution will be found before a full-blown trade war erupts.
“Given the strength of the surveys previously, I don’t think this is anything to be concerned about though and this has been reflected by the muted reaction to the releases in the markets.”
Thursday is shaping up to be one of the quieter days of the week from a U.S. perspective, possibly the calm before the storm that is the US jobs report. The trade balance data really stands out for the U.S. today, more so from a headline perspective than something that will likely be particularly market moving. Jobless claims is the only other notable release although we will also hear from Raphael Bostic, a voting member on the FOMC this year who supports gradual rate hikes and a move back to the neutral rate.
There’s been plenty of economic data already from Europe this morning, with services PMIs from across the region for March being released, as well as retail sales figures for the euro area. As was to be expected, we did see a slowdown in the surveys driven by a number of factors, most notably bad weather and supply-side constraints.
Given the strength of the surveys previously, I don’t think this is anything to be concerned about though and this has been reflected by the muted reaction to the releases in the markets. The euro is off only slightly on the day while the pound is down around 0.2% against the dollar. Still, they’re both not far from their recent highs against the dollar, which has done better the last couple of weeks but is struggling to break significantly off its lows.