Market Overview

Markets continue to pay key attention to any signs of a possible tightening of unfriendly rhetoric on trade issues between China and the United States, which began last week with accusations from the US authorities concerning the covering up of important information about the origin or spread of the COVID-19 infection by China. However, it seems that the majority of the reasonably minded investment community consider this verbal altercation as a crowd-pleasing overacting, at least for now.

Resumed and even unexpectedly fast ascent in the S&P500 stock index futures from 2830 to 2865 in early Asian hours today could be considered at the moment as a kind of confirming signal about what is happening in reality. Although on Wednesday evening a sharp and decisive sell-off of some shares in the last hours of New York trading was an alarming call. The S&P500 futures climbed above 2880 during European trading time, closely approaching this week's highs, while the high-tech Nasdaq index has been able even to rewrite its previous weekly peak. European markets were also trading slightly above yesterday's closing levels this morning, although their attempts to rise are restrained due to growing doubts about the sufficiency of financial assistance to affect small and medium-sized enterprises at national levels within the framework of coordinated EU programs.

"The S&P 500 and the Dow fell on Wednesday as declines in financials and defensive groups countered gains in tech shares and as data showed US private employers laid off 20 million workers in April, underscoring the economic fallout of the coronavirus outbreak," wrote Lewis Krauskopf, a Thomson Reuters reviewer. "Financials and other cyclical groups, which often outperform when the economic outlook improves, declined. Only two of the 11 major S&P sectors were positive, with tech leading," he added. It's easy to agree with this arguments while it seems to be a normal approach to the assets of different sectors, as Nasdaq ended higher, although other indexes pulled back more later near the end of Wednesday's American session.

With a moderately positive mood of a large number of market traders, which is reflected in the slow but steady recovery of the US stock indices as the value of some companies is approaching closer to their previous maximum values. Markets may still be very cautious and spook at shadows. "We are dealing with a very fragile rally," said Michael Purves, chief executive officer at Tallbacken Capital Advisors. "Selling into the close doesn't make you feel good," he added. This is also proven by the relatively unstable behaviour of currency pairs on Forex, where money from the Australian Dollar or the British Pound goes sharply to the "safe-haven" US Dollar one day, and then returns just as quickly back the next day. The Turkish Lira continues to update new historical lows as if emphasising the uncertainty of emerging markets.

Turkish traders interpreted comments from a Federal Reserve (Fed) policy maker as ruling out a Fed swap line to cushion Ankara's depleted reserves. Richmond Fed President Thomas Barkin, when asked on Wednesday about extending swap facilities to Turkey and others in need, said the Fed already has lines with countries that have a relationship of "mutual trust" with the US, and the highest credit standards. "It does not cover all the countries," he cleared up. Burdened by geopolitical problems in the region, where Turkey is self-involved in a military conflict on the territory of neighbouring Syria, and being on the way to a recession even before the pandemic, Ankara asked the Fed and other central banks for access to funds as its own net currency reserves have fallen to nearly $25 billion from $40 billion so far this year.

Whether the Turkish currency weakness is a special case or not, will become clear sooner or later. In the meantime, the markets turned a blind eye on yesterday's statements by US President Donald Trump who said China "may or may not" keep a trade deal. Trump is going to give an update next week on how US-Sino trade relations are progressing amidst the pandemic situation. US and China will hold a phone call on trade negotiations reportedly as early as next week, according to Bloomberg. Chinese Vice Premier Liu He and US Trade Representative Robert Lighthizer will be involved. Markets now have a hope to get some details on the first phase of the deal practical implementation.

However, many are, perhaps, somewhat reassured by the fact that the threat of new tariffs is not yet on the agenda, but the analysis of the execution of the previously concluded deal. Mr Trump on Wednesday said that China is buying a lot of farm products. "They were going to buy $50 billion worth, the most they ever bought was 15 or 16 and now they are going to 50," said Trump. "$250 billion overall, that's never happened. No president has ever talked about that," the US President explained. This was coming to the point. "We're watching the deal very closely. They understand. They have a deal and hopefully they are going to keep it," added Trump. "They may or they may not, we'll see," he resumed.

Earlier, on May 3, the US President spoke in a more harsh manner, clearly indicating the position that if China does not buy enough US goods the US will impose tariffs, hinting to a possibility that last year's trade deal could be broken. Now just the public discussion about the degree of trade agreements' implementation by China sounds like music to the investors' ears.

The Chinese media has also avoided direct retaliatory accusations against Trump himself, limiting themselves to exposing people from his inner circle in an unsightly way. For example, they are not shy about speaking out against Secretary of State Mike Pompeo. The Global Times, which is a daily English-language tabloid newspaper under the auspices of the Chinese Communist Party's People's Daily newspaper, commented: "Pompeo is playing an old trick by smearing China for hiding the truth and echoing anti-China sentiments in Western media in order to fool the American and Western public... He is not just telling a lie; he is trying to introduce an absurd logic into global politics". The Global Times editorial's title is "Pompeo betrays Christianity with lies". And here is one more remarkable quote: "It is generally believed that Pompeo is a devout evangelical Christian. Sometimes he even "preaches" at diplomatic occasions, for which he was criticized... Nonetheless, his lying for political purposes is contrary to his label as a so-called "devout Christian." It is widely known that Christian doctrine opposes lying - it's a sin. A false witness shall not go unpunished. And he that utters lies shall perish. From the Ten Commandments, the ninth says, "You shall not bear false witness against your neighbour."

That was all about Pompeo's words on some "enormous evidence" that shows, in his opinion, that the COVID-19 outbreak began in a laboratory in Wuhan. The Global Times journalists remarked that "some Chinese, Japanese and even Americans have long suspected that some COVID-19 patients turned up when the US seasonal flu began last winter. There are even some reports that the lipoid pneumonia cases from vaping e-cigarettes observed in the US last year were actually the COVID-19 cases. But these theories cannot be promoted as an official conclusion, especially by governments. The world's top scientists believe the virus came from the nature." However, there are no direct attacks on Trump in this or similar Chinese articles, except for fairly harmless reminders that back in early March "US President Donald Trump said that the coronavirus risk to Americans was low and the situation was "totally under control". As result, the US government failed to issue social distancing guidelines at the early stage of the outbreak. How could it blame China for hiding the virus information?.. Wuhan was taken by surprise because of the lack of virus information. The US, by contrast, shall find no excuse for its incompetence since it had tips from many places in February."

The Chinese Ministry of Foreign Affairs also called Peter Navarro, who is an adviser to the US President, a liar as he said on Monday that "China lied" about the coronavirus is a bigger issue than what "may or may not happen with the trade deal." But everyone tries to keep their noses clean when looking to the highest leaders of the countries, and that's a good sign for the markets again. The Japanese Nikkei Asian Review wrote today: "Trump's bid to punish China hamstrung by reelection risks," because "any new tariffs over coronavirus likely to hurt American farmers..., who are crucial to Trump's hopes for reelection in November. If China responds with its own tariffs, the price of imports into the US will jump, adding salt to an already wounded economy."

This aptly sums up the reason for investors' worries each time the speeches of the US authorities have an anti-Chinese flavour, but this also perfectly explains why markets still consider all these talks as a way to draw some attention away from the electorate opinion, but do not believe in the possibility of implementing American tariff threats. There are already lawsuits in American courts from groups of US citizens in an attempt to condemn the Chinese Communist Party or some representatives of the Chinese government for financial losses, but the legal prospect of such lawsuits is questionable. The American authorities need a heroic economic recovery from the pandemic crisis before November elections, and not new economic problems. Too many people in the market are convinced that this is what the US authorities may proceed with.

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