Consensus is back to believing there will be no trade war. The sense of relief helped Wall Street bounce back from Friday’s hammering to open higher on Monday while it was a mixed showing for European markets. Most European benchmark indices spent the day in marginally positive territory while the FTSE 100 flirted with a daily decline.
A conciliatory tweet from President Trump over the weekend and hopes that China is about to announce market access reforms have brightened the outlook for US-China trade relations. The Speech at China’s Boao Forum by President Xi Jinping on Tuesday will be a key inflection point. Reforms that move China in the direction of a more open economy have been on the table for a while and are distinct from changing rules on intellectual property that Trump has been pushing for. Xi striking the right tone can help trade negotiations. Announcing specific measures to level the playing field for international firms operating in China would show some much-needed good will. The problem is Xi will be speaking to a domestic audience and may prefer to demonstrate strength over good will.
Deutsche Bank AG (DE:DBKGn) NA O.N. (NYSE:DB) shares were amongst the top risers in Europe after the bank announced it will replace CEO John Cryan with co-deputy chief executive Christian Sewing. We see the positive market reaction reflecting the removal of uncertainty around Cryan’s future. That’s as opposed to some strong belief in Sewing’s ability to the right the ship. Sewing is a long-time DB insider so it is hard to see how he will deliver anything new. Market volatility has picked up again and M&A is at record levels. If Sewing continues the failed policy of winding down the investment bank, these share price gains may not last long.
Shares linked to Russian oligarchs took a bruising thanks to newly announced US sanctions. In London markets, EN+ was down by a third, Evraz (LON:EVRE) fell 15% and Polymetal (LON:POLYP) dropped 10%. The sanctions make it almost impossible for these Russian firms and their billionaire owners to transact in US dollars, the main currency used in international trade and the standard denomination for commodities.
German exports dropped in February in another example of soft Eurozone data but overall US dollar weakness saw the euro appreciate regardless. There are a flood of ECB speakers over the course of this week, some of whom could give some hints on how the central bank will remove stimulus.
Geopolitical tension in the Middle East helped lift the price of oil. The Chemical attack in Syria and airstrikes in response are humanitarian tragedies that further destabilize the region. The prospect of a global trade war has seen the price of oil decline of late but Middle East tensions and the possible undoing of the Iranian nuclear deal should limit the downside.