29 April to 05 May: President Trump spooked markets

Before President Trump unexpectedly threatened to further raise tariffs on Chinese imports,  the case for a meaningful and sustained improvement in global market sentiment has been building, as economic activity in the US remains convincingly solid in the context of low inflation and depressed (real) interest rates with the Fed being patient following through on its tightening agenda. Furthermore, recent macroeconomic data revealed that the broader Chinese economy has stabilised and is set to enjoy a cyclical upswing sooner rather than later. Therefore, by now the worries about a sharp global economic slowdown (and recession) have been proven wrong, in our view. However, investors are yet to fully appreciate the combination of firm economic growth, contained inflation and low (real) interest rates, as the broad market still focuses on downside risks to growth outlook. Further releases of strong macroeconomic data and a trade deal between the US and China would certainly relieve short-term market and economic stress facilitating a greater appetite for risky assets.

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