Trade war anxiety hits markets

US-China trade relations remain significantly strained, with hopes of a phase one deal fading on Trump’s claim that we may have to wait another year. Meanwhile, the FTSE 100 is underpeforming after the pound rose in the wake of a stronger construction PMI.   

• Risk assets hit as Trump warns that the US-China trade war could go on for another year
• US-EU relationship under duress as Trump threatens to hit French goods
• FTSE 100 hit hard, as risk-off sentiment is accompanied by a rising pound

Global risk assets have taken a hit today, with trade war developments hitting a triple-whammy of bad news. US-China relations have certainly come into question of late, with the US passing of a Hong Kong bill certainly hurting relations and denting hopes of a trade breakthrough. The worry for traders is that it seems talks are largely non-existent at the moment, with Trump claiming that they may hold off until after the US election a year from now. With Trump likely to desire a big boost to growth ahead of those election, it is likely he is bluffing, yet the likely move to impose further tariffs in two-weeks’ time does highlight a breakdown in talks.

Elsewhere, we are seeing signs that the US-EU trade spat could open up into a similar tit-for-tat scenario after France threatened EU-wide retaliation in response to US plans to place tariffs on a number of French goods. With the likes of France and the UK (under a possible Corbyn government) threatening to ramp up tax on US tech firms, there is a high likeliness that we will continue to see unease between the US and EU for as long as Trump is in power. 

With all this destruction throughout global equities, it comes as no surprise to see havens such as gold and then yen outperform as traders seek their relative safety. The FTSE 100 has been the biggest underperformer in Europe, with the pound’s resurgence hindering any hopes of stability throughout the day. A rise in the UK construction PMI helped build on yesterday’s manufacturing jump, yet worries remain for businesses in the UK as Corbyn closes the gap on Johnson in the polls.