12 July 2018 ( Lagos ) : A fresh wave of risk aversion swept across financial markets after the United States threatened to impose tariffs on an extra $200 billion worth of Chinese goods.

This unfavourable move comes just days after the two countries slapped tit-for-tat tariffs on $34 billion worth of each other’s imports. With Beijing describing the latest tariff threats as “totally unacceptable” and vowing to fight back, concerns are likely to heighten over a full-scale trade war becoming a reality. With escalating trade tensions between the world’s two largest economies presenting a significant threat to global economic growth and stability, there are no winners. Investors are likely to maintain a cautious stance for the rest of the trading week with global sentiment expected to remain fragile.

This cautious tone is already reflected in global equity markets yesterday morning with Asian and European stocks tumbling lower. Global equity bulls fought back on Thursday as investors re-evaluated the possibility of Washington imposing 10% tariffs on another $200 billion worth of Chinese imports.

Market speculation over the unpredictable Trump administration making a last-minute U-turn before the tariffs come into effect in August has left investors hopeful. The prospects of possible trade talks between the United States and China have also soothed concerns over trade tensions escalating further. While this false sense of optimism over the two largest economies in the world finding a middle-ground on trade may continue supporting risk sentiment, investors need to avoid complacency. It must be kept in mind that the trade war battle lines have already been drawn, with both nations showing no signs of back down.

The volatility witnessed across global stocks this week continues to highlight how markets have become increasingly sensitive to global trade developments. Although Asian and European markets have rebounded higher today, overall sentiment remains shaky and this could end up limiting upside gains.

Source: Lukman Otunuga, Research Analyst at FXTM

Reporting for EasyKobo on Thursday, 12 July 2018 in Lagos, Nigeria