Just as markets were trying to prove that they have regained some rational balance when they shrugged off central banks’ rejection of further monetary support, geopolitical tensions returned with vengeance. Perhaps it was naïve of the international investment community to assume (and price into their market valuation metrics) that the US and China would imminently reach a trade agreement, simply because it is widely accepted wisdom that trade wars have no winners.
It is still hard to gauge whether it was brinkmanship on the Chinese side, too much pressure from Trump or internal disagreements on both sides which led to the breakdown in the negotiations. In any case, the week began with some threatening Trump tweets and ended with a massive further hike of US trade tariffs on imports from China and no dates for further negotiations. However, just as the week before, markets reacted far more sanguinely than most strategists would have imagined to the prospect of serious negative consequences for the world’s two largest economies.