Market risks associated with the pandemic are becoming more or less balanced as new coronavirus cases seem to stabilise. But the almost forgotten reason for worries is now reborn. The US-China trade tensions, now associated with the alleged concealment of information known to Beijing authorities on the harmful potential of the coronavirus in the early stages, have resumed. The treat of rising tariffs on Chinese imports came just as fragile signs of recovery are most haunted to restore global trade and communications.
However, US President Donald Trump could be well understood as he removes part of his own liabilities ahead of presidential elections planned for this fall. Besides, the issue of reducing enormous US expenditures and economic losses during the lockdown could be also on the table.
Washington could also benefit by supporting risk off sentiment as US assets including US Treasuries are becoming more attractive in this stance. This support could lead to the following consequences. The US Treasury may be issuing a new huge debt at a lower rate to compensate budget spending. The Treasury plans to borrow $3 billion in Q3 2020 compared to $1.28 billion for the whole of 2019. Benchmark ten-year Treasuries' yield is now at 0.67% compared to the Fed's fund rate at 0.25%.
One way or another, the artificial demand for US bonds fueled by rising risks that came at very terrible timing, may raise the demand for the US Dollar. The US Dollar index has risen from 99 points to 100 points since the US accused China of concealing information on the virus potential, and may continue to rise to its April highs of 101 points. Gold may rush to the $1700-1750 area.
On the other hand, this may mean another decline of risky assets - from stock indexes to currencies that depend on raw materials exports like the Loonie, the Aussie and the Kiwi to their April lows.
Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.
Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.42% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.
© 2011-2021 Teletrade-DJ International Consulting Ltd
Teletrade-DJ International Consulting Ltd is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11.
The company operates in accordance with Markets in Financial Instruments Directive (MiFID).
The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Telerade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.
TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.
Telerade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.