Week from 6 to 12 May 2019
Trading logically kicked off in the red on Monday, after Trump tweeted that tariffs on $200bn of Chinese goods would increase from 10% to 25% in the absence of a global trade deal. Things could have gone badly as Trump claimed that Beijing “had broken the deal” and China promised to retaliate. Though talks between both parties resumed at the end of the week, the expected deal failed to materialize and the U.S. tariffs eventually jumped as the Friday deadline passed. China expressed “deep regret over this development” and announced “countermeasures” in a statement Friday afternoon. In a nutshell, the worst case scenario was taking shape.
However, the trade standoff has not yet resulted in a bloodbath. Of course, equity markets around the globe were all solidly in the red (S&P500 down -2.18% WTD closing at 2881.40, after having tested the support at 2837, MSCI EMU -3.78%, MSCI World -2.36%, MSCI Emerging Markets -4.56%, MSCI All China -5%) with the VIX index peaking up to 23.3, but they ended Friday on a slightly more positive note, helped by purchases from Chinese state-backed funds. Simultaneously, the report from the Department of Commerce showed that the U.S. goods trade deficit with China had just tumbled to five-year low in March.
Unsurprisingly, all the S&P500’s sectors finished the week into negative territory but trade-sensitive industrial stocks clearly led in percentage declines (industrials: -2.81%, materials: -2.82%). Financials were also hit (-2.25%) by the fall in government bond yields, the flight-to-quality flows logically heading to U.S. Treasuries (10-year T-note yield inching down to 2.47% while the German 10-year Bund slid to -0.05%) at the expense of risky assets (stocks and corporate bonds). Consumer staples (-0.3%), energy (-0.56%), utilities (-0.72%) and REITS (-0.72%) weathered the storm.
Last but not least, it is worth noting that gold was also favoured (+0.47%) by this risk-off environment.
Find the full report here : https://www.trackinsight.com/weekly-flow-report/2019-05-10/global