A potential trade truce has investors breathing a sigh of relief, but the situation remains complex and uncertain.
European markets and cryptocurrencies have shown signs of recovery, indicating that the latest US-China trade spat may not be as severe as initially anticipated. The tension between the two economic giants escalated last week, with President Trump threatening to impose hefty tariffs on China, accusing them of restricting rare-earth mineral exports. However, a glimmer of hope emerged on Sunday when Trump and his team hinted at a possible deal with China, easing investor concerns to some extent.
The UK's FTSE 100, along with other European markets, opened higher on Monday, with stocks showing resilience. Cryptocurrencies, which had experienced a sell-off over the weekend, also rebounded, with Bitcoin and Ether recovering some of their losses. Richard Hunter, an expert at Interactive Investor, coined the term 'Taco trade,' suggesting that markets rally due to Trump's tendency to back down from aggressive tariff decisions.
But here's where it gets controversial: while some investors are embracing the Taco trade, others are seeking the safety of gold, a traditional safe-haven asset. Gold prices hit new highs on Monday, reflecting a heightened sense of uncertainty. Derren Nathan of Hargreaves Lansdown believes US stock futures indicate a potential rebound, with traders hoping for a repeat of the six-month growth period driven by trade deals and a soft landing for the US economy.
Despite the potential for a trade deal, Asian markets remain cautious, with main indices tumbling on Monday. Chinese markets, in particular, experienced declines, with the Shenzhen and Shanghai exchanges slipping. Chinese officials have urged the US to correct its 'wrong practices,' indicating that trade tensions are far from resolved.
And this is the part most people miss: even with the trade tensions, Chinese exports have shown resilience, bouncing back in September and surpassing forecasts. Official data shows an 8.3% year-on-year increase in exports, the fastest growth since March, outperforming economist predictions.
So, while markets may be rebounding, the US-China trade war is far from over. What do you think? Will the Taco trade prevail, or is this just a temporary respite? Share your thoughts in the comments below!
