US equities had a volatile day yesterday (1 June 2020).
Reports that China was suspending purchases of US agricultural products in an escalation of the geopolitical dispute over Hong Kong’s autonomy, meant US equities opened down on the day.
While this could threaten the US/China Phase 1 trade deal (the stability of which has been a calming silver lining as tit-for-tat tensions have risen), it is not in China’s best interests to aggressively ramp up tensions, as the country is on the losing end of potential supply chain changes (as tariffs have eroded much of their competitiveness, some manufacturing and production has already started to move to other countries such as Vietnam and Mexico).
Sentiment was also negatively impacted by the protests in cities across America, as this could delay some of the economic reopening plans, especially if coronavirus infections start to rise again as a result.
Thankfully, equity markets looked past these issues to close with a small gain on the day, following the US Institute of Supply Management (ISM) data, which came in at 43.1 for May compared to 41.5 in April.
Although tit-for-tat geopolitical tensions will ensure equity market volatility remains elevated (especially as the US Presidential election in November nears), this ISM reading, while below 50 (which indicates activity is decreasing), is positive as it indicates to us that things have stabilised and are starting to recover as lockdowns start to be eased.
As such, the FTSE-100 has opened around 1% higher this morning.
Investment Management Team