May 4, 2020

Trump Rattled Markets Again

Trump Rattled Markets Again

European stocks are trading lower as investors are worried about the rising tension between China and the US. This increase in tension is taking place at an inappropriate time. The world is suffering from one of the worst and deepest recessions, and the last thing that investors want to see is Trump ratcheting up tensions with China that are likely to have a further adverse impact on their economies.

President Trump blamed China yesterday. He said a Chinese error caused the spread of coronavirus without presenting any evidence. Governments and central banks around the globe have done their best to soften the blow of coronavirus on the global economy through their fiscal and monetary policies. If Trump continues with this stance of blaming China and remains determined to punish Beijing for this—as per his recent narrative— a “Mayday” type of situation could be the likely outcome for the global economy.

On the positive front, investors are likely to keep a close eye on the vaccine development situation. Trump sounded confident about having a vaccine by the end of this year yesterday. In stark contrast, public health officials aren’t confident about a vaccine being available by the end of this year.

Nonetheless, last week, the news of Gilead’s drug to treat COVID-19 patients pushed the markets higher and investors completely ignored dismal US GDP numbers—both stories broke pretty much at the same time. If the possibility of having a vaccine became a reality by the end of this year, it would surely support market optimism. This is because it reduces the chances of a second coronavirus wave having the same detrimental impact on the global economy as the first one.

In the commodity space, oil trading prices are under pressure today after enjoying a relief rally during the last few days. Oil prices fell during the Asian trading session and both Brent and Crude prices are down now as well. The WTI West Texas Crude contract is trading at $19 and only a few days are left before the current contract expires. Investors are concerned about the storage issues despite the fact that we have seen some serious voluntary production cut by the US Shale oil producers over the last week. The possibility of an intense sell-off of West Texas Crude remains a possibility.

The safe-haven bet, buying gold, is back in demand and the price of the shining metal is trading higher today. Given the fact that tensions have resurfaced between the US and China, investors are likely to play safe and include gold in their portfolio. Fear of trade war usually pushes investors towards safety bets and gold sits at the top of this ladder. No one wants to see a hostile situation surging but the US officials are on course to play with fire. Trump has also mentioned that the possibility of increasing tariffs on China remains a possibility.  Having said this, the upward momentum in gold isn’t really strong as the gains are minuscule. (More on how to trade gold)

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