Who benefits from a Trump trade truce?

With this weekend’s G20 meeting of world leaders almost upon us, I thought it would be interesting to consider who would win from a US–China trade truce?

In recent weeks we have seen some global equity markets peak and hit (in some cases, across the Atlantic) fresh record highs!  This is in spite of what has been perceived as “geopolitical concerns”.

So could we be gearing up for a monster rally if Trump and Xi seal a trade deal this weekend in Japan, ending the current war of tariffs? The US has already told markets that a deal is 90% done. Is this “FAKE NEWS” to keep investors optimistic? But what if it really is the case?

Let’s consider which stocks, or sectors, could benefit most handsomely? Let’s look at two sectors you might not automatically think of!

The Miners may already be pricing in a handshake between Trump and Xi. Since 3 Jun shares in Antofagasta are +17%, Anglo American +16%, BHP Billiton +12%, Rio Tinto +6%, Glencore +12% (albeit off its highs?).

So might they struggle to run on much further?  The old market adage says “Buy the rumor, sell the fact”. Might the current set-up represent another fine example? Or could the Miners be primed for another push north?

Or might it be the equally risk sensitive Banks which outperform, playing catch-up, having been suppressed by concerns over global stability, fears of protracted trade wars, and worries about Brexit?

Lloyds is back to 57p. In April it was trading at 66p (16% higher). Barclays currently trades 149.8p. In April it was at 170p (+13% higher). Historically the banks have been risk-on stocks, benefiting when markets are optimistic. In recent weeks, however, falling bond yields have hurt the sector, making borrowing cheaper, potentially hampering their profit margins.

Similarly, Gold has rallied to 6 year highs fuelled by geopolitical fears and a weaker USD (makes it cheaper for non-USD buyers). This would normally suggest sentiment is “Risk off”, however, Miners are doing OK, while Banks languish.

So what will we find on Monday morning? Risk-off and everyone (Miners and Banks) in retreat, because of a protracted trade war and more tariffs? No reaction because of no news? Or risk on thanks to a US-China truce? But would everyone benefit, or just certain candidates?

Whichever you are interested in, be it Miners or Banks, it is highly possible that their shares move on Monday. To be kept up to speed with the markets and provided with daily trade ideas, sign up to our Research Gold Pass.

Have a nice weekend.

Chris Peters, Senior Trader, 28 June 2019