Following a torrid May in which markets were once again faced with uncertainty surrounding the trade war saga, to date June has proved the contrary.

Indeed, following the increased uncertainty, major central banks opted in transmitting some sort of confidence by reassuring markets that being accommodative was a prerogative that they will pursue.

The more dovish tone comes as no surprise given that the trade war saga has been prolonged to the limit of hindering further global growth. In fact, last Wednesday’s Federal Reserve (Fed) minutes showed that many expressed the view that the case for a rate cut has strengthened. In all fairness, prior to the release of the said minutes, markets were already pricing in an 88 per cent probability of a rate cut in July’s meeting. That said, despite the fact that we concur with the position taken by market participants, we believe that the meeting between the US and China at the G-20 summit in Japan, will have its weightings on how the Fed will act.

Expectations of a positive outcome from the G-20 summit have increased as markets cheered Trump’s tweet that the Chinese President and himself will have an extended meeting. Despite that fact that in the past, Trump had many times indicated that a deal will be struck, to date markets are faced with a situation whereby no agreement has been reached and thus, as we have reiterated in previous writings, his comments should be taken with a pinch of salt.

In this regard, we believe the timing is uncertain and to this extent we believe that at the G-20 meeting to be held in the coming days, we should see some form of consolidation in discussions which will still be still positive for financial markets.

That said, it is this timing uncertainty that is pushing major central banks, including the European Central Bank, to re-consider their monetary stance.

Undoubtedly, a dovish stance will help in stretching the economic cycle; however, the threat of increasing tariffs further might hinder the said accommodative stance. Markets need to have a clear vision with regards the trade war saga. A recession might be inevitable if the two largest economies will continue to pursue the threat preposition. That said, we believe that now China has more leverage and this is also being expressed by large tech companies such as Apple, which stated that tariffs will ultimately hurt the US economy.

The coming dates will be crucial in having a better understanding of how this prolonged saga will unfold.

Disclaimer:

This article was issued by Jordan Portelli, investment manager at Calamatta Cuschieri. For more information visit, https://cc.com.mt/ . The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.