26th November 2018
Following Mike Pence’s (the US Vice President) comments at last weekend’s APEC summit, talk of a new cold trade war between the US and China dominated equity market sentiment – and as a result, the below table of equity market moves makes for ugly reading as most equity markets sold-off again this week.
However, while Mike Pence’s comments would on the face of it suggest that the US-China trade issues won’t be resolved anytime soon, personally, I don’t think we should read too much into it as it was essentially the same message that he has previously delivered, which doesn’t suggest to me that there is any widening of the divide.
And let’s face it, Donald Trump could declare a victory simply if China agrees to strengthen IP protection for US companies and import more US products. For example, simply redirecting orders from Airbus to Boeing would make a big difference. Airbus announced almost 200 orders from Chinese buyers at the Farnborough Airshow in July – and Boeing believes that China will buy 7,690 new planes worth $1.2 trillion over the next two decades and that China will account for 18% of the world’s commercial aeroplane fleet by 2037.
Consequently, this will hopefully persuade US Fed policymakers not to stick with their stated trajectory for interest rate increases (one more next month followed by another three in 2019).
In fact, there were some dovish coos from the Fed this week from both the Fed Chair and Vice Chair, Jay Powell and Richard Clarida – so while the Fed is likely to increase interest rates in December, hopefully next year’s interest rate trajectory will finally (and thankfully) start to wilt. This will also help support equities, which have simply got too pessimistic about the outlook.
This coming week we have the Fed’s preferred inflation gauge, the PCE and the second reading of US Q3 GDP, along with the eurozone’s CPI and unemployment data.
Ian Copelin, Investment Management Expert*
*Ian Copelin is an Investment Director at Wealth at Work Limited which is a member of the Wealth at Work group of companies