World equities recovered slowly on Friday morning amid hopes that Donald Trump and Xi Jinping find common ground on and move forward with trade negotiations. By forcing Google (NASDAQ:GOOGL) to restrict Huawei’s access to Android and by putting them on an export blacklist list, the decision rattled financial markets as fears spread.
European equities bore the brunt of the sell-off yesterday as investors anticipated that the US President could use similar methods in the EU-US trade negotiations. The DAX erased 1.75%, the STOXX 600 slid 1.40% while the S&P 500 gave up only 1.20%.
In the FX market, the reaction was similar with investors buying safe-haven currencies such as the Swissy and the Japanese yen. USD/CHF tumbled to 1.0024 while USD/JPY reached 109.46.
This morning the confidence has returned partially as Trump said that Huawei could be in included as part of a trade deal. Global equites trimmed substantially yesterday losses with the DAX jumping 1% and the Euro STOXX 600 rising 0.80%. US futures are also better bid with front month contracts climbing 0.60%. In the FX market, the story is much different, as risk aversion remained quite high. Investors are reluctant to load on risky asset. After dipping to a two-year low, the single currency bounced back toward the 1.12 threshold.
The pound sterling has been on a roller-coaster ride over the last few day amid Brexit uncertainties. GBP/USD slid as low as 1.2606 before returning above the 1.27 level. Overall, we are not convinced that the global situation would change much in the short-term as US/China trade war is in full swing. Cautions is still warranted, especially for directional trading; however, given the market turmoil, volatility trades are quite appealing.
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