Markets are coming under pressure as a renewed US-China trade war appears in the cards, reports Fiona Cincotta.
The old adage “Sell in May and go away,” (actually the original is sell in May and come back on St Leger Day, which is based on English Aristocrats leaving London for the summer) isn’t looking like such bad advice so far.
After a steep sell off in stocks on Friday, renewed tensions between the United States and China is dragging on risk sentiment again at the start of the week, dragging on stocks and boosting safe-haven flows. Crude oil prices are once again tumbling on trade war fears and rapidly filling storage. With a shortage of data releases, risk sentiment will be a key driving factor across today’s session.
US – China trade wars fears resurface
Stock are pointing to a lower start amid fresh efforts from the Trump administration to pin blame for the Coronavirus pandemic on China and linking the outbreak to a laboratory in Wuhan. Tariff threats continue to loom fueling fears over another chapter to the U.S.-China trade war.
President Trump’s threats of additional tariffs and his growing desire to pull supply chains from China is fueling fears that the trade deal, signed just at the beginning of this year could be under threat. President Trump’s motivation has never been greater. The devastating impact of the virus on American lives and the economy could cost him the U.S. election. His big chance at keeping election hopes alive is through uniting the American people against a common enemy, China.
Another round to the U.S.-China trade war is the last thing that global economies will be able to cope given their fragility as economies start to ease lock down measures and gradually restart. Stocks across Asia dropped lower overnight and European and U.S. futures are pointing to a negative start as trade war fears overshadow optimism surrounding the gradual reopening of economies and easing of lock down measures.
Oil Drops 7%
After a gain of 16.7% last week, crude oil is once again under pressure. WTI is trading down more than 7%, through $18.50 per barrel, hit by the prospect of a trade war strangling the global economy and. suppressing oil demand further. There are also the persistent concerns about over supply and inadequate storage. Economies are starting to re-open, however this is happening at a very gradual pace. Demand for oil is not expected to pick up sharply any time soon. In the meantime, with too much oil around the system pressure will keep prices below $20 for the time being.
Eurozone PMI
In Europe attention will shift towards manufacturing PMI readings. So far, the manufacturing sector has held up better that the service sector. However, expectations are still weak, particularly given that most countries were in lockdown for the full month of April. Eurozone manufacturing PMI is expected at 33.6 in April, down from 44.1 in March, with Germany at 34.4 down from 45.4 in April. The euro (EUR/USD) is already moving lower in risk-off trading. Weak PMI readings could drag the common currency towards $1.09.
Fiona Cincotta is a Market Analyst for Currency Live
