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Calmer mood prevails following trade war pause
A quieter mood prevails after yesterday’s surge on news that the US and China had paused their trade war for 90 days.
Trade war pause helps risk appetite recover
It is fair to say that investors around the world were delighted to hear that the talks between the US and China over the weekend had gone well. Trade between the two countries had effectively ground to a halt following the imposition of such eye-wateringly high levels of tariffs.
The initial pause in tariffs announced in mid-April gave hope that both sides would come to the negotiating table, which provided sufficient fuel for a huge rebound in global stock markets. Monday’s agreement helps support this recovery in risk appetite, since both sides will continue their talks.
Recession fears have been eased following the news of the pause, though it is still far from clear that the global economy can escape the fallout from the shock of April’s tariff announcement. Confidence in the US economy, and in the US government, has taken a severe knock, and will take time to recover.
FTSE 100 remains cheap compared to other markets
The FTSE 100 has rebounded from its April lows, recouping a series of key levels, but it remains cheaper on a valuation basis than many of its global peers. It currently trades at 12 times current earnings, below the DAX 40's 17 times and just over half the S&P 500's 23 PE ratio.
This relative cheapness may mean that investor flows continue to head to the FTSE 100, as global investors will view the index as undervalued versus its global peers.
Key events to watch today
While the main news will be the pause in the US-China trade war, today’s US inflation reading will still be worth watching. Last month saw prices actually shrink by 0.1% compared to March’s figures, while the annual figure held at 2.4%. This month, prices are expected to rise 0.3% month-on-month (MoM), while the annual figure ticks up to 2.5%.
The data is likely to be discounted unless it shows a much more significant increase, since markets will now be revising their expectations of higher price increases following the pause in tariffs.
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