The most important development so far in October has been the brokering of a truce of sorts in the ongoing Sino-American trade war. US and Chinese equity markets reacted favourably to the news, and while it will take several weeks to formalise the language of this ‘phase one’ deal, it hopefully provides some element of certainty to both business and consumers that trade policy will not get materially worse over the very near term. The fact that the next round of US tariffs on Chinese imports – due to come into effect on 15 October – has been taken off the table should be supportive for US consumer spending to the end of the year.
As we pointed out numerous times, we believe poor business confidence is the primary driver of the recent weakness in US economic data, and any sort of stabilisation or clarity to the trade outlook would likely do a lot to support sentiment and business investment.
However, it should also be noted that many of the more fundamental disagreements between Beijing and Washington remained unresolved, particularly with regards to intellectual property transfer, state subsidies or greater market access. While the news of a truce is certainly to be welcomed, we are not out of the woods by any stretch of the imagination, and we continue to believe it is unwise to prematurely position portfolios as if all the risks are behind us.