Trumps’ temporary tariffs relief for markets

Risk assets in demand, but be selective

Following the first round of telephone conversation between US and China trade representatives, President Donald Trump was seen announcing a delay to the fresh tariffs set for September 1 to December 15. This was, however only for a subset of items. While the sustainability of this latest development remains to be seen, risk assets had certainly picked up overnight on this lead. No surprise as well that the sectors leading gains on the comprehensive S&P 500 index had been the IT and consumer sectors with the respective items in the delayed list.

The move itself, however, appears to have more of a growth support motivation than a result of improvement in trade relations with China, seeing President Donald Trump citing the Christmas shopping season as a cause. This had likely been on the back of the fear that the impact of the ongoing trade war could endanger consumption which is core for the US. As it is, pressure from US businesses had mounted following the suggestion of the 10% tariffs on $300 billion worth of Chinese imports.

Despite the latest development, the uncertainties up ahead remain and the likelihood for a deal is seen little changed given the outstanding issues. This may make little material difference for growth going down the road even as it provides a breather for risk assets. The only clue we may perhaps be deriving from the latest development is President Donald Trump’s recognition of the impact on consumption that could make the consumer sectors ones to pick up on despite the market pressure. Look to the likes of the consumer staples ETF (XLP ETF) that can be seen keeping to the uptrend with the boost overnight for a return to the earlier July’s high in the short-term.

Source: IG Charts