Regarding the Latest Trade News from May 5

A Message from David Burrows

With the overnight news on China impacting markets, it’s worth reviewing the current market positioning. I have always found that it is not the news that is most important, but rather the way the market reacts to news and the backdrop that the market is working against. We came into the weekend with the US equity markets making new highs and having shrugged off 10 days of mildly sloppy trading. Our key long term risk models have remained strong over that period showing that under the surface, markets are very healthy and share prices are firmly rooted.

While I am sure that markets will have a jolt this morning, here are some key points to consider:

1 – Our ears in Washington tell us that there is a broad framework for a trade deal in place which includes most of the key points investors are looking for.

2 – Despite Trump’s tweets, it appears the Chinese delegation remains scheduled to make the trip to Washington this week to work at completing a deal.

3 – With Trump’s tweets in China blocked by the state, there is less risk of embarrassment to Chinese leadership.

4 – Earnings have been coming in above expectations and both US and Euro economic data is now showing early renewed strength.

5 – Global financials have been firming up over the past month as data has been improving – an important signal that we have begun the next up-leg.

6 – Monetary policy and financial conditions have been easing over the last three months and are supportive of risk assets.

While idiosyncratic events can impact markets in the very short run, when the backdrop is favourable coming into the event it is as though the markets are riding on shock absorbers and the impact is less than one would expect.