Expect more stock market volatility as US presidential election nears if tariff threats heat up again

Name: Coronavirus pandemic creates ‘new Cold War’ as US-China relations sink to lowest point in decades
Uploaded: 2020-06-19T13:00:12.000Z
Duration: 2 min 6 s
Description: Coronavirus pandemic creates ‘new Cold War’ as US-China relations sink to lowest point in decades

The greatest risk to seesawing markets is an escalation in US-China tensions. While rhetorical sabre-rattling is unlikely to unsettle investors in the near term, an increase in tariff threats closer to November could see renewed turbulence

Reading Time:3 minutes

Why you can trust SCMP

A sign for a Wall Street building is seen on June 16. Photo: AP

Sylvia Sheng

Published: 9:00pm, 19 Jun 2020Updated: 10:22pm, 19 Jun 2020

Stock prices have seesawed recently as market sentiment is being pulled in different directions. On the one hand, worries about a second wave of Covid-19 infections are dampening spirits.

June 12 was the worst day for stock markets since the March sell-off, with the S&P 500 index slumping 5.9 per cent and Europe’s Stoxx 600 index tumbling 4.1 per cent. Many pointed to the rise in US infections across states such as Texas and Florida, which had loosened their lockdowns early, as a trigger for the sharp drop in global equities.

Stock markets also opened weak on Monday amid reports of a fresh Covid-19 outbreak in Beijing linked to the city’s biggest wholesale food market.

On the other hand, recent economic and policy developments have boosted hopes, supporting stock prices. The economic outlook is improving as disruptions from Covid-19 ease slightly. High-frequency data suggests that April marked the trough in economic activity, with better data evident in May across major developed market economies. A major surprise for markets this week was the strong rebound in US retail sales in May.

Policy support was also further strengthened. The US Federal Reserve bolstered the market mood when it announced plans to purchase corporate bonds on Monday, highlighting the seemingly unlimited policy support from central banks. The US government is also reportedly pushing for a US$1 trillion infrastructure spending programme.

02:06

Coronavirus pandemic creates ‘new Cold War’ as US-China relations sink to lowest point in decades

In addition to a resurgence of coronavirus infections, a key risk to stocks is the escalation of US-China tensions. Rhetoric has grown tougher on both sides and a number of US actions on the technology and financial fronts seem likely to further strain relations between Washington and Beijing. However, deteriorating relations have yet to meaningfully dent the markets.