Understandably however, investors cannot dodge the unpredictable bullets that are being shot from the gun of President Trump and I would suggest over the near-term to focus attention on the prospects of volatility in other asset classes, like the Turkish Lira and South African Rand.
The Rand behaved unusually quietly at the start of the week, particularly considering the spectacular sell-off in Asian markets. This is a rare occurrence for a currency that so often acts as the ultimate investor proxy for taking on risk in a portfolio. The lack of action in the Rand does suggest that investors are sitting on the side lines ahead of the elections. While the local currency remains exposed to election risks, external drivers in the form of US-China tensions will influence the currency’s valuation. If a resolution to the US-China trade tensions is agreed, this will be a welcome development for the Rand and many other emerging market currencies. However, Rand could find itself exposed to downside risks if tariffs on Chinese imports get raised higher on Friday.
When it comes to the Turkish Lira we cannot rule out the risk of expecting sustained selling momentum on the currency following the bizarre news that the Istanbul election will be re-run. This decision represents another severe swerve for investor confidence in Turkey, at a time where the Lira has already received a pounding from other political risks and central bank independence concerns.
Away from the view on Lira and Rand over coming days, lessons of the past do suggest the next move for wider global markets will be swayed by whether the threat from President Trump to increase tariffs on China were a negotiating tactic.
Given the constant back and forth over trade negotiations, investors are at risk of becoming complacent and increasingly numb to new developments.
Complacency can be understood, especially when considering how Donald Trump has made bold threats in the past only to soften the rhetoric at the last moment. However, there is investor fatigue from the trade tension theme and numbness resides from how long this situation has been prolonged.