There is no actual trade war but the war of words is being fiercely fought. The rhetoric around trade is getting worse but the mood in the markets has improved. Despite all the back-and-fourths over a trade war, most equity benchmarks will finish the week higher.
Share prices fell when another $100bn worth of US tariffs against China was touted and again when China responded, but recovered thereafter. Chinese officials rejecting conducting negotiations “under these conditions” calls into question the idea of a peaceful resolution to the spat over trade. But markets don’t seem to mind.
The calmer reaction to escalating trade tensions on Friday shows that investors have other things on their mind. A big miss on US jobs growth figures in March lessens the fear that interest rates will quickly rise to a level that makes the stock market unattractive. The negative reaction to more tariffs may have been muted because of anticipation over a testimony from Federal Reserve Chair Jerome Powell. Although the pace of wage gains picked up in March, one month’s data is unlikely to change Powell’s opinion that there is no discernible shift higher in earnings or inflation.
We said on Tuesday that ‘optimism about earnings needs to dethrone trade war concerns for market sentiment to turn positive. It seems that inflection point may have arrived just in time for the start of US earnings season next week. Investors have been buying the dip in big US tech stocks. Shares of Tesla (NASDAQ:TSLA) are now back in a 'bull market'.
On the FTSE 100, banks and basic resources were under pressure but everything else faired relatively well. Shares of retailers M&S (LON:MKS) and Next (LON:NXT) dropped after a broker downgrade based on their exposure to the UK economic cycle during a period of economic weakness. However, there was some confidence on display over the future of UK retail when Bestway acquired Conviviality (LON:CVRC) retail divisions including Bargain Booze for £7.5m.
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