U.S. – China trade tensions – last week we asked the question: what does President Trump’s decision to up the ante in the trade negotiations with China (and the concurrent spike in volatility) mean for the risk outlook?
We posited that despite the news headlines around the negative impact of increased trade tariffs, our forward looking software, ClearENGINE, was far from signalling a large scale sell-off.
In the week that has passed, developed market equities have actually eked out small gains while China and EM equities more broadly have borne the brunt of the conflict. While there is considerable uncertainty around trade policies, the advantage of our analytical software is that it allows you to capture the full picture of data driving investment returns. It serves as your anchor in the investment decision making process.
This week, our software is still signalling caution – we are moderately risk off over the short term (0-6 months) and neutral over the medium term (6-12+ months).
What is worth highlighting in the short term is that the overall Economic Activity outlook has turned neutral this week (from moderately bearish over the past month). Data surprise signals are less bearish and the consumer and housing signals continue to support economic activity.
We remain on alert and certain signals in our library (presented below) show why.
Our China Economic Sentiment signal – derived from our 3rd party partner Alexandria Technologies – is showing a marked deterioration and is now back in neutral territory.
And the technical outlook in China over the short term has also deteriorated, and is now “Moderately Risk Off”.
In summary, our investing software is signalling that investors should practice caution, but despite the U.S. – China trade tensions it is not warning of a large scale sell off.