Achieving a trade deal between the US and China will put an end to the current rally in risky assets, which began as late as December. That’s what Shawn Matthews of Hondius Capital Management thinks.
“At the moment we only have a risk – on the psychological level – investors have long positions in risky assets and will remain in them until the deal is concluded”. – says Matthews. “When this happens, you better be on the side of the bears.” – adds Shawn Matthews.
Although its recommendation remains to be invested in shares for the time being, the bond market is beginning to show signs that need to be taken into account. Since Christmas, global stocks have grown by 13%, which somewhat reflects the possibility of a deal between China and the United States. So, we can witness the classic scenarios: “buy the rumor, sell the fact”.
Bonds do not follow stocks in this case. If investors were really in the risk-on mode, we would see 10-year bonds also catch up.
The Fed’s new stance along with the optimism surrounding the negotiations currently provides some support for the stock. During that time, however, yield on government securities remains under pressure because of concerns that the Fed’s next move would actually be to reduce interest rates.
Source: Bloomberg Finance L.P.
Graphs: Used with permission of Bloomberg Finance L.P.
Trader Martin Nikolov