Global investor confidence set to recover - AmpGFX

Global equity markets have firmed over the last week and may continue to shake off the recent negativity that arose as a result of angst over threats to global trade, according to Greg Gibbs, Analyst at Amplifying Global FX Capital.

Key Quotes

“While the Trump administration is expected to keep agitating on trade relations with China and Europe, negotiations are expected to drag on. In the meantime, market nerves may ease, and investors may take solace from ongoing solid global growth momentum.”

“The immediate news that the Trump administration plans to remove restrictions on Chinese tech firm ZTE Corp may help buoy confidence in global equities this week.  The move raises the chances that China will pave the way for Qualcomm to acquire NXT.  And it generated speculation that China may not impose tariffs on US Soybean imports.”

“The market may also see potential gains to EM markets in preparation of the inclusion of mainland Chinese equities to MSCI benchmark indices on 1 June.”

“Q1 economic data in Europe and the USA are thought to have been depressed by weather disruptions.  If so, we should see improvement in indicators over coming months, helping buoy confidence in the sustainability of the global recovery.  China has also eased monetary policy to underpin growth.”

“The USD rebounded sharply over the last month in line with higher US rates and yields and more volatile global equity markets.  The pace of the move, after months of range trading, coming off a persistent downtrend in the last year or so, caught the market by surprise and probably contributed to the weaker trend in EM markets.  In the last week, there has been a modest retracement in recent USD gains.”

“If the pace of the USD appreciation slows, or it moves into a range, we might see investor confidence in global equities and EM markets recover more easily.  If capital does return to EM markets, it is likely to help curtail appreciation of the USD more broadly, and be self-reinforcing.”

“If equity markets are moving into a more stable, potentially stronger phase, we should see upward pressure on global yields to resume.”

“We see the immediate outlook for the USD harder to call, but upward movement in global bond yields are likely to be led by the USA.  And these may tend to underpin the USD.”

“We see risk biased towards further rises in global bond yields.  If confidence in the equity market returns, attention will turn to building inflation risks from rising commodity prices, solid global economic recovery and tightening labour markets.”