At the G20 summit, President Trump and Mr Xi agreed to resume trade talks after the US pledged not to put any more tariffs on Chinese goods while negotiations continued. President Trump also softened his stance on Huawei, the Chinese telecoms company. The US-China trade truce followed a similar pattern to last year when Mr Trump and Mr Xi met at the G20 summit in Buenos Aires.
This has provided some short-term relief to markets, but it does not address a more comprehensive trade deal that clears the path ahead. The weekend was more about getting talks back on track rather than producing any conclusions and it seems that both camps are prepared to play the long game, although President Trump will likely have one eye on his election campaign.
While trade tensions have eased over the short term, market optimism that the US Federal Reserve and other central banks are willing to ease monetary policy very aggressively has underpinned equity markets. Meanwhile, global bond yields continue to be driven lower as fear continue to escalate over future growth prospects.
Tensions between the US and Iran continued, though the decision by President Trump not to retaliate militarily against Iran for now, has meant that the oil price has stabilised. However, President Trump did impose further sanctions on Iran, targeting Supreme Leader Khamenei and military leaders. The existing sanctions already cover 80 per cent of the Iranian economy; these new measures seek to prevent access to financial instruments for the Iranian leadership. How this dispute plays out from here depends on if we see further attacks on shipping and how the US responds.
Looking further forwards, we are on the brink of another corporate earnings season that will remind us of the impact of the slowing economic data on company earnings. Meanwhile, the support from the central banks appears to be ever present. It therefore remains to be mindful that with markets at or close to record levels in many cases, and a lot of positive outcomes being assumed on the many geopolitical issues that remain ongoing, there is a lot of good news priced in to current market levels, and the potential for bad news remains elevated with complacency aplenty.
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