Making sense of this crazy world
A couple of hours after sending the Update last week, equity markets regressed on Trump’s response to China’s rhetoric about rare earths supply, when he said the US would hit Chinese exports with 100% tariffs. Since, Trump has softened his stance and pulled back from his threat. For some, this just reinforced the mantra that is known as the TACO trade (Trump Always Chickens Out).
Each day, it appears Trump delivers a strong statement on something which, in the short-term, moves markets. Beyond the knee-jerk reactions though, it is company earnings which drive market performance and the wider macro factors such as jobs data, inflation and interest rates. Earnings season has started, and it’s kicked off with US banks posting good results.
The Middle East situation, on the one hand, appears encouraging, but the void that has been left by Israeli troops falling back from their positions has led to Hamas fighting Palestinians. An awful situation and the fear is that the peace deal is in danger of fragmenting, and we return to full-on conflict again. European defence stocks have fallen on the prospects of a prolonged period of peace, but they rose yesterday as the situation in Gaza deteriorated.
Gold has been on fire for a number of reasons this week, but there are warnings of a possible collapse in the price. Central banks around the world have been storing gold as sentiment around the US dollar has weakened. More about this below.
Credit spreads on corporate bonds, especially the higher risk end, have tightened and now there is the fear that the corporate bond rally has run out of road and is vulnerable to a sell-off. This has manifested in weakness across markets last night in the US and today in Europe.
I listened to the thoughts of Tatton’s Chief Investment Officer, Lothar Mentel, this week and his comments were not dissimilar to many of my comments and positioning in last week’s update, in that there appears to be increasing confidence in the broader market outside of technology stocks. I’ll paraphrase his thoughts below.
Helping market sentiment has been the thought of the Federal Reserve Chairman, Jerome Powell, signalling support for more interest rate cuts as the US job market cools.
This week’s content:
- Rare earths spat with China
- US earnings season is underway with good news
- Israel, Gaza and Trump. What next?
- Gold is on fire, but how long can this last?
- Tight credit spreads spook markets
- The view from Tatton
- Summary
Rare earths spat with China
US stocks rebounded at the start of the week as Trump took a softer tone with China following his threat of 100% tariffs. He said “the US wants to help China, not hurt it”!
This was after US stocks had their biggest one-day sell-off since April. The Nasdaq had fallen by 3.6% on Friday. The cause? It was China’s position on the export of rare earths which moved the US President to respond. Following Trump’s threat, the Chinese government threatened new countermeasures over the weekend, which resulted in Trump softening his stance.
The US Treasury Secretary, Scott Bessent, suggested that there might be the possibility of extending a pause of import duties on Chinese goods for longer than three months if China were to relax its proposed export controls on rare earths.
Continues…
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