We saw another positive day for the markets yesterday as risk aversion trades faded once more with positive signs coming from the Trump – Juncker meeting. In the short term both sides will hold off on tariffs while negotiations proceed and forward guidance of working towards “zero tariffs” between the two parties was well received by the market. The Euro and equity markets rallied on the back of the news. It wasn’t all a bed of roses for the equity bulls though as first US carmakers gave strong warnings of tariff influenced tough times ahead and then Facebooks poor after hours earnings report hit the market, it’s shares trading down as much as 23% in extended trading.
On the face of it, the news from Washington was positive for global growth as both sides have agreed to postpone tariffs in the short term and the market has reacted accordingly. But when we look further into today’s announcement it feels that we are just at the start of what could be a very lengthy process, we’ve essentially got a ‘deal to make a deal’ and both sides will have to make concessions going forward. The EU is a big, slow moving institution and the EU parliament would have to approve any new agreements moving forward, this can be easier said than done with so many different interests being represented. On the US side of things, we’ve heard strong statements on this situation from the administration and the political implications of any perceived back down will be to the forefront of the Presidents mind as negotiations progress.
Looking forward to today’s trading and we’re set for a mixed start to the day in Asia as the market digest the overnight news. It’s quiet in terms of fundamental data releases and the main focus will come later in the day with the ECB meeting and the US durable goods numbers. The ECB meeting is set to be a bit of a non-event as it’s an ‘interim’ meeting but investors will still be monitoring the press conference closely. But once again traders will watching the news wires for the next exciting development in global trade tensions!
