European update – All eyes on Washington

Investors nervous about US/China talks

Equity markets are trading back in the red on Thursday, as hopes of a deal between the US and China were quickly dashed, albeit not squashed altogether, making the next 48 hours of talks all the more important for markets.

Source – Thomson Reuters Eikon

If people’s worst fears are realized and talks break down altogether, the market impact could be significant. One of the reasons we’ve seen such an incredible recovery from the fourth quarter sell-off has been the belief that it’s a case of when, not if, a deal will be reached. It was heavily priced in. The global shift from central banks towards a more accommodative stance has also been a major factor that could limit some of the downside but a breakdown in talks would be a massive blow.

Thankfully, a complete breakdown is not one of the more likely outcomes of this week’s talks. That’s not to say that we won’t see more tariffs imposed but the lines of communication will likely stay open. As it stands, the best likely outcome is probably a delay in tariffs and continuation of talks. That may temporarily support markets but the intensity of negotiations will have to be ramped up.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam