Trump-Putin talks raise hopes of a ceasefire – Middle East risk returns
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Europe and China continue to outperform.
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Trump-Putin talks raise hopes of a ceasefire.
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Middle East risk returns.
A strong start in Europe with the DAX leading the way in anticipation of a potential breakthrough in peace negotiations thanks to a first call taking place between Trump and Putin. The recent allocation in capital away from US markets has continued with the Hang Seng outperforming its mainland indices of the back of global demand for Chinese equity exposure. The 2.5% gain for the Hang Seng overnight takes the six-month return for this index to an impressive 37%. That stands start contrast to the S&P 500 which has gained a mere 1% over that same period. Clearly US stocks have been anything but exceptional under Donald Trump’s leadership.
The prospective end to the Russia-Ukraine war has traders excited for a more positive growth outlook in Europe going forward, with heavily industrialised nations such as Germany having suffered under the weight of elevated energy costs in recent years. Notably, markets have already been pricing in a high likeliness of a breakthrough, with Dutch gas prices falling back as US gas gains ground on the prospect of a breakdown in Canadian trade relations. For the euro, we are seeing the prospect of an economic boost overshadow the potential disinflation effects that could see the ECB ease further if CPI falls well below 2% in the coming months.
Donald Trump’s decision to take aim at the Houthi rebels in Yemen provides a fresh risk for markets to take note of, with some claiming that the Iranian spy boat ‘Zagros’ may have also been targeted. Trump’s no-nonsense approach to reopening the waterways could ultimately backfire given the struggles we have previously seen for those attempting to secure the region. With Trump attacking Yemeni positions and the Gaza ceasefire seemingly over, markets have to reprice towards a more unstable Middle East for the time being.
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