U.S.-China trade war escalates: trading data risk for geopolitical risk
Manulife Investment Management have released this report highlighting their assessment of the road ahead.
April’s market action is perhaps best characterized as being neutral to slightly positive; unfortunately, an escalation in the U.S.-China trade war at the beginning of May has frayed nerves and, by extension, market returns. Policy uncertainty aside, incrementally better data out of Europe and the United States has generally reinforced our view that the next few months should be marked by stabilization and/or improvement. In our minds, the inflection higher in the recent U.S. retail sales data is a positive development that should not only serve to stabilize the U.S. economy over the coming months, but should potentially support the global manufacturing impulse as well, which has softened markedly over the last several months. Our take on recent market action: It’s unsurprising that the equity markets didn’t respond well to being reacquainted with trade policy uncertainty. The hardest hit were emerging markets, which went from being slightly positive to generating slightly negative returns since the beginning of last April. While returns were negatively affected across the board, the magnitude has been different: Developed markets with higher commodity/global trade exposure (Canada, Australia, and Japan) were hit harder, while more diversified/ services-oriented geographies (the United States and Europe, most notably) have so far clung to positive returns during the period.
The full report can be seen here