The tepid signs that global growth was bottoming are likely to be overwhelmed by the negative shocks from rising trade tensions. Moreover, the cushion from valuations/risk premia is quite low. The UBS Synthetic Trade War Monitor helps us track where trade sensitive assets sit within the trade talks ‘fear – complacency’ spectrum. Whilst optimism on trade talks has understandably fallen recently, our monitor still sits in the upper half of its post-February 2018 range and very far from its most pessimistic levels in late-2018. As pessimism increases, European and EM equities are likely to exhibit the most downside pressure over the medium-term and even US equities in the near-term.
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