Listen: How are markets reacting to this week's failure of trade talks?
"A market's reaction to this week's failure of trade talks between the US and China, Katie Martin, the F capital markets editor discusses the impact on equities bonds and currencies with Michael MacKenzie. The F T senior investment commentator. So it may be difficult to tell where we're going on trade talks to in the US and China, but it's certainly fair to say that those talks taken a ton for the worse over recent days, the US, obviously ramped up punch of tariffs on Chinese imports and China has responded in kind the market didn't really see this coming, and it doesn't like it might tell us what's going on on the markets front where I think the equity market has stood out from other areas such currencies and US treasury Bolton's this year. It's simply assumed that there was always going to be a trade deal, and to certain extent that still the call consensus amongst many that are ultimately we will get a deal the equity market has come under pressure. Some would say it was already looking like it was going to have a tough SABA because it's rallied so much this year and the two big questions. Of course, are is a global economy actually going to pick up steam and therefore boost corporate earnings towards the end of the year, and is China stimulus gonna flow through through the global economy lug and has in the past. Now trae to sort of being on the back burner really since the beginning of the year when the temperature sort of eased off between Donald Trump and Beijing is now come back and it's come back with a vengeance. And equities don't like it. And in particular, we've seen too key sectors, which really all the post children of the global supply chain and radio of globalization of the last three decades, and which is so important in terms of the trading relationship between China and the rest of the world carmakers and chipmakers they've really been knocked this week. We getting a little bit of a bounce back. But as classic bounce. You've had the worst one day selloff in stocks. We've seen this year. So you can say that equity market is shaken a little and so really the thing to watch for now is when do people stepping in and buy the dip. Unfortunately, the time line for trade deal. It was assumed before that the upcoming g twenty meeting Japan at the end of June would sort of be the big song and dance signing ceremony. When. Now. So the hearing from both sides that well, actually, g will meet with Trump, and maybe they can salvage something. So we've got a very uncomfortable waiting period, and that's gonna leave equities vulnerable to tweets from both sides. And I think in that environment. You'll see a lot of investors just buying insurance. They buying options put options against the S and P and other equity benchmarks the coming in and buying vix. Volatility which had seen it out of control lows to the to say that the market didn't see this coming. You can see that in the volatility indices. The market was not priced for any volatility. Although interestingly enough, the monthly survey from Bank of America institutional investors, says a lot of them have been buying insurance. So I think you've seen this you've seen treasuries and other global sovereign bond. Yields falling and finding buyers whenever has been a rise in yields as year because people have been adjusted their portfolios. They want to have the ballast or insurance of Covent bones. Against their equity longs. Now from a central Bank perspective where does the pain and up landing from this is it on governments through fiscal policy. Or is it ultimately on the consumer is not going to be the bit that they're gonna worry about what I think if you see the US escalate tariffs. So they're threatening to apply twenty-five percent tariff to the remaining three hundred billion of Chinese imports, many these consumer products, and that would really be felt by consumers. I think companies would be reluctant to absorb the hit. So that could have a short-term effect on inflation and push it up. Although I think the bull market is taking a much longer view here in thinks economy is late cycle in the US. It's slowing down. What will voluble than people think? And that's why we've been seeing inflation expectations for five and ten years falling since the middle of last month. It could be interesting from a US critise perspective in the sense that it's only a couple of weeks ago that we were talking about potential earnings recession. US Listrik companies that faded away because results beat expectations. And now, suddenly as you say companies are going to be in that situation where they have to calculate how much this costs. Can we absorb ourselves and how much we have to pass on to consumers the willingness to pass it onto consumers? I'm going to guess is going to be quite low. So this just mechanically has to eat away at corporate earnings. Right. Does and against that. Of course, is if you continue to see long day to treasury yields fall that in the past has helped keep equity spinning, but I think we're reaching a point where we're going to see I would say the summer the message from the bull market is fairly Dowa. We know that bombs to take guess a less optimistic view than the equity punch. Yes. But we are going to see whether or not the slowdown US. Call me really is a lot more material than people expected the moment. And if that is the case, and if US corporate earnings don't rebound as their and that's sort of the forecast for the end of the year, particularly in the fourth quarter. Then I think US equities have a tough time. I think it's a sideways market a best from here sideways, but wobbly, wobbly"