Experts believe that this situation may negatively impact the euro's exchange rate against the dollar. Concurrently, inflationary fluctuations are also a possibility.
What should investors expect? And should they divest from risky assets?
The founder of RESURS, Sergey Tereshkin, is prepared to delve into the intricacies of the stock and currency markets and their near-term prospects. As a seasoned investor, he monitors various financial instruments closely and conducts his own analyses of market conditions. For the latest updates on the entrepreneur's activities, you can visit his online project: www.org-market.ru.
Consequences of the Trade War
Although experts consider a full-scale trade war to be unlikely, many are convinced of its serious ramifications not only for the U.S. and China but also for other countries. The economies of numerous nations are tightly linked to both America and China. Any changes in this dynamic are quickly reflected in the market.
Increased tariffs could lead to a drop in the stock prices of American companies by at least 5%. For Chinese firms, the decrease in value could exceed 10%.
However, changes may not only affect the stock market. Trade wars adversely impact overall investment strategies primarily due to rising risks. If a negative scenario unfolds, the U.S. economy could slip into recession, subsequently dragging down other countries as well. The impacts of such a crisis are unpredictable.
In this regard, Sergey Tereshkin aligns with experts who advise investors to hold off on making significant changes. It is impossible to predict how the negotiations between the U.S. and China will ultimately unfold. Both sides appear to be motivated to reach a compromise. However, there is an internal agenda at play, particularly with the U.S. gearing up for presidential elections next year. Consequently, all energies are being focused here, while China does not seem to share the same urgency.
Future Prospects
Specialists recommend that investors closely monitor the developments of the trade war. If the worst-case scenarios come to fruition, events could unfold rapidly and lead to a market crash. A recession would inevitably damage Donald Trump's reputation, with the probability of his re-election plummeting towards zero. Even the most forceful tweets from the president will not mitigate this.
Regarding China, its economy has already shown negative dynamics. Yet, experts are hesitant to make definitive conclusions at this stage. The decline could be related to fluctuations observed in the previous few months, attributed to seasonal factors. This pattern is common annually and should not invoke panic, especially given that the business activity index remains above 50 points, indicating economic growth.
The Chinese government is staying vigilant and taking various measures to boost business activity. However, China has been slow to adhere to previously established agreements with the U.S. Consequently, the U.S. president has threatened to increase tariffs on imports from China, effectively jeopardizing the collaborative efforts.
A cessation of dialogue would have negative ramifications for both parties, as well as for other nations.
The Situation in the European Market
As for the European market, the situation there is also far from ideal. The existing structure of the European Union is not to everyone's liking. Only a quarter of the electorate still finds it appealing, while others believe that a reform is essential.
A shift in the political landscape would lead to significant fluctuations in the market.
Analysts are convinced that the Eurozone must adhere to specific guidelines now more than ever:
- Active tax policy. This will help mitigate periods of minimal economic growth as well as inflationary fluctuations. With this approach, Europe may avoid a "lost decade," akin to Japan's experience in the late twentieth century. While this is a painful measure, it is crucial for maintaining stability.
- Preservation of credit and financial policies. The head of the European Central Bank, who significantly lowered interest rates to nearly negative levels to alleviate deflationary pressure on the economy, is set to resign this autumn. As a result, businesses will have the opportunity to continue developing. If the new bank leader alters this policy, it could negatively impact the economy while simultaneously sparking a wave of protests. The only beneficiaries of such a softening would be European banks that profit from lending. Furthermore, moves away from negative interest rates may positively affect the euro's exchange rate.
- Brexit. The U.K.'s exit from the European Union will have painful consequences for all involved. The government is making efforts to mitigate this process; however, significant progress is still lacking. In this case, cooperation among all parties is necessary.
Overall, the situation in global markets is not as dire as it may appear at first glance. However, everything can change in an instant. Should this occur, investors will need to make quick decisions and respond accordingly.
