Canceling trade talks
On Friday, President Trump said that the next round of trade talks which was supposed to take place in September between the US and China may be called off. His comments are sending a clear signal that trade dispute between the two largest economies of the world is far from over.
The risk going forward is to see a further escalation in the trade dispute. With time running out, and equities still at elevated levels, the chances of a substantial correction are relatively high.
Throughout this year, many investors have been following the strategy of buying the dips, and that’s how most algorithmic software is programmed to work. However, if recession fears continue to grow, even the power of central banks will be limited. That’s why investors need to keep a close eye on Sino-US trade tensions.
Economic data to watch this week
Following the surprise contraction in UK GDP on Friday, investors will be looking at Europe’s largest economic growth numbers. Economists expect the German GDP to have fallen 0.1% in the second quarter. Although growth figures are considered to be lagging indicators, the never-ending US-China trade dispute will continue to add pressure on the export-driven economy. Business confidence has been hit hard recently and that’s likely to lead to less future investments. Loosening monetary policy by the ECB will only have limited effects to prevent Germany from falling into a recession.
Retail sales from the US and UK will also be under the investors’ radar. US retail sales are expected to see only a 0.2% increase in July after a 0.4% rise in the previous month. This would mark the weakest reading in five months, and if the figures surprise further to the downside, it might be a strong indicator that the economic cycle is at significant risk. Meanwhile, in the UK, retail sales are expected to have plummeted 0.3% in July after a surprise 1% increase in June.
Markets will also keep an eye on US and UK inflation data; Eurozone growth, trade balance, employment, and industrial production; Jobs data from the UK and Australia. All of these releases will provide a clue on where the global economy stands at the moment.
