27 June 2019: Conflicting signals over the direction of trade between the world’s two largest economies are set to disrupt and destabilize the positive mood across markets ahead of the G20 showdown.

The Trump administration wasted no time in adopting the good cop, bad cop strategy leading up to the trade talks. While US Treasury Secretary Steven Mnuchin said he is “hopeful” of a US-China trade deal, President Trump then cited the “Plan B” option, which could see more US tariffs being imposed on Chinese goods. Investors are likely to remain extremely wary and cautious leading up to this weekend’s meeting, for fear of being left empty-handed once again.

In a perfect world, the best-case scenario for financial markets would be for both sides to find common ground on trade and secure a breakthrough deal. However, we do not live in a perfect world as there are many times where investors’ hopes for a breakthrough trade deal were shattered. The fact that the United States and China have agreed to a tentative tariff truce ahead of the G20 meeting does suggest that there is still some light at the end of the trade war tunnel. A market-friendly outcome will be for both sides to display co-operation and a strong interest in further negotiations to ease trade tensions that have winded the global economy.

Given the unpredictability of President Donald Trump, it would be unwise to be unprepared for a possible scenario where talks descend into disagreements on trade. Such an outcome will most likely rattle financial markets as concerns over slowing global growth and sizzling trade tensions fuel risk aversion.

Reporting for EasyKobo on Thursday , 27 June 2019 in Lagos, Nigeria

Source: Lukman Otunuga, FXTM Research Analyst