29 May - update from our investment partner

  • 29th May 2020

What has happened

The market’s rally was stopped in the last hour of trading as US equities fell by 1% on the back of US/China tensions.

US/China risks flare

The main news story catalysing the risk off tone at the end of the US session was the announcement that Donald Trump would host a news conference on China later today. There has been no publication of the agenda or topic for the conference but given the recent mood music around China, markets are expecting this to be a very hawkish message. International condemnation of the new Hong Kong national security law continued yesterday with a rare joint statement from the US, UK, Canada and Australia. In it they said that the new law was in direct conflict with the UN-registered and legally binding Sino-British Joint Declaration. As we know the broad agreement in the recent votes in Congress, the tough on China policy has cross party support and to remind investors of this, Democratic Speaker of the House, Nancy Pelosi branded President Xi a ‘very oppressive dictator’.

New case growth pick up

South Korea has long been considered a template for how to deal with the coronavirus pandemic however with a surge in new infections linked to a logistic centre in Seoul, concerns around a second wave have restarted. South Korea reported 58 new infections on Friday which is still quite low but far in excess of the numbers in late April where the country reported a few days with no new infections. Fears over a second wave as countries reopen their economies are keeping markets on their toes and means that risk appetite is even more closely correlated with the estimated probability of a vaccine being developed by the end of the year.

What does Brooks Macdonald think

Yesterday saw a modest rise in both second wave and US/China risks so markets have understandably taken a breath from the strong rally of recent days. All eyes will be on the press conference given by Donald Trump later today, strong rhetoric will be guaranteed. The main question however is whether any actions are taken either in relation to Hong Kong’s trading relationship with the US or economic sanctions against China and Chinese interests.

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