This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.
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?
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
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research