The jump higher out of the gates in European stocks proved durable. Investors are acting like Chinese President Xi Jinping’s ‘conciliatory’ speech at a forum in Asia makes a trade war dead on arrival. Although another twist or two in the trade dispute seems likely, it does seem we’ve stepped off the road to ruin. The exception was again shares in Russia. The benchmark MOEX index has now notched up double-digit losses in just two days. The fact that the new US tariffs target individuals and industries that are not part Putin’s inner circle increases the risk of investing in any Russian company.
There were some specific beneficiaries of the proposed economic reforms in President Xi’s speech. European automakers including Volkswagen (DE:VOWG_p), BMW (DE:BMWG) and Peugeot (LON:0NQ9) Citroen all saw share prices rise in excess of 2%. Lower import tariffs will cut the cost of purchasing foreign cars for Chinese drivers. Car sales have plateaued in developed markets but there is years of rising demand to take advantage of in China.
VW shares got an additional boost from reports the automaker is looking to replace chief executive Matthias Mueller. It would be the second head of a major German company on the chopping block in as many days. German firms seem to be taking a football club approach to management. At the other end of the spectrum, airline shares including Air France KLM (LON:0LN7) lost altitude thanks newly announces strikes.
Wall Street opened higher but the gains look on icy ground. The raid of lawyer Michael Cohen ratchets up the political pressure on President Trump. There are various avenues where Trump could lash out at the perceived injustice of the raid, most of which raise the geopolitical temperature in markets. Military intervention in Syria is just one example.
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