Will the market’s good mood last?
US President Donald Trump’s apparently constructive meeting with his Chinese counterpart Xi Jinping is setting a positive tone for the second half of 2019.
As we write the FTSE 100 is back above 7,500 and in the US the S&P 500 hit a new record high and moved close to the 3,000 level.
But just how much store should investors be setting in the ability of the US and China to resolve their differences over trade?
Recent history suggests not too much. After all, the truce agreed in December 2018 collapsed as talks made little progress towards an actual deal, despite Trump tweeting sporadically to suggest an agreement might be in sight.
Investors are left to strike a tricky balance. They shouldn’t get too caught up in what Trump says but his remarks undoubtedly have a market impact, at least in the short term.
Arguably it would be better to focus on what Trump does. Prospective tariffs have been suspended for now but if existing tariffs were removed or scaled back that would represent a real reason to sit up and take notice.
WHAT TO LOOK OUT FOR IN THE REMAINDER OF THE YEAR
Other key events or themes which could define the markets in the remainder of the year include the actions of the US Federal Reserve (also known as the Fed).
Investors appear to be pricing in at least one rate cut in the remainder of 2019. If Fed chief Jerome Powell disappoints on this score you would expect stocks to take a hit. The next meeting of the Fed comes at the end of July.
US second quarter earnings will start to filter out in the next few weeks and, along with the half-year reporting season in the UK, this will help reveal if the recent pick-up in sentiment has firmer foundations.
Finally, Brexit looms large on the horizon. The result of the Tory leadership contest on 23 July will reveal if Jeremy Hunt or Boris Johnson has won the race to occupy Number 10.
Johnson has suggested the UK will exit the EU ‘deal or no deal’ on 31 October. The intervening months are likely to reveal if this is just rhetoric to get Tory party members on side or genuine commitment.
We will be exploring what the current UK political situation means for investors in a forthcoming edition of Shares.
The global political situation will have to be monitored closely too, with tensions rising in the Middle East, as US-Iran relations deteriorate, as well as a rising tide of protests in Hong Kong.