6 to 12 May: Renewed trade tensions poison the well

Talks between the US and China ended without a resolution last week. Trade tensions escalated further, as the US administration raised tariffs to 25% on USD 200bn worth of Chinese exports to the US. Following the move, China has vowed retaliation. The anxious reaction by the broad market reflects the fact investors have started to re-assess whether a deal between the two countries is possible in the near term. Although global investor sentiment turned sour, in our view the macroeconomic fundamentals of the US and China will not be meaningfully hurt by the prolonged trade discussions. For the time being, the market is likely to ignore macroeconomic fundamentals and will probably focus on headlines related to the trade discussion between the two countries. Protracted trade tensions will continue to weigh on global market sentiment until the two parties clearly signal a step forward towards a consensus.

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