Looking broadly at the financial markets, one can say that greater optimism has returned, at least in the short term. Safe haven assets like Japanese yen, Swiss franc, American bonds or gold are losing value. In turn, futures contracts on equity indices, and even copper, are rising, which may be a barometer for expectations regarding global economic growth.
The beginning of the week gave investors new hopes that the trade conflict will not escalate further. The President of the United States, Donald Trump, withdrew the decision to impose tariffs on Mexican products. The activity of the president of the United States does not end there - he said that the Fed's interest rates are too high. What's more, Trump added that the euro and other currencies are devalued against the US dollar, which puts the US in a very unfavorable situation – according to the tweets of the US president.
In response to these words, the dollar depreciated slightly, as the market does not take into account the possible currency war, except for the current trade war. However, the pressures of the US president to cut interest rates by the Fed, praising low inflation or mentioning a too high dollar can not go unnoticed. In the context of further development of the situation related to the trade war, the forthcoming G20 summit in Japan will be the most important. Donald Trump threatened to raise tariffs on Chinese products if President Xi Jinping did not meet with him at the upcoming summit.
This information was compensated by reports from China, which significantly improved sentiment in the markets, including the stock exchange, where stock indices increase. Chinese shares have already recorded the biggest profits in the last few weeks due to the news that local governments will have more money to spend on infrastructure, which can compensate for the last threat from the US president. This is another action of the Chinese authorities, which is to prevent the deepening of the economic slowdown and, in consequence, to improve the sentiment in the markets.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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