Markets Update: Political implications of possible US-China trade war for investments

Political uncertainty remained in focus for markets as US-China trade faced challenges, and closer to home, Brexit talks enter a new phase. Ian Slattery reports.

The potential for a US-China trade war dominated markets last week, as equities sold off amid the continuing rhetoric. The Chinese Renminbi also came under pressure as Chinese central bankers cut the Reserve Requirement Ratio on the back of concerns over the Chinese economy.

The US dollar continued to appreciate against a basket of peers, particularly against emerging market currencies, which have been caught right in the middle of the US-Chinese spat. The US dollar was also helped by a slew of positive economic releases including solid labour market data, and steadying inflation expectations.

Political risk remained a focus in Europe as Angela Merkel attempts to build a consensus position on the migrant crisis, both domestically and with key eurozone allies, whilst the pressure on Theresa May continues to be ramped up as the Brexit negotiations enter a key phase.

The global index fell 1.5% last week to pare back gains for the first half of the year to 2.8%. Oil closed up strongly at just over $74 per barrel on the back of supply concerns centering on the potential for sanctions against Iran. Gold continued its recent slide and closed the week at $1,253 per troy ounce. Copper also slipped during the week and is now down over 10% so far in 2018.

The 10 year US bond yield finished the week at 2.86%, helped by the prevailing ‘risk off’ sentiment. The German equivalent closed at 0.30%.