"The great US-China trade war is all over," says Howard Gold on MarketWatch. The G20 summit in Japan brought a handshake between Donald Trump and Xi Jinping, with the former offering to shelve new threatened tariffs on Chinese imports and to lift some restrictions on tech giant Huawei. With the 2020 election looming, the president has shown that he "won't go to the wall" to win a fundamental change of American trade relations with Beijing.
Equity markets sighed with relief, with America's S&P 500 rising to a new record high just below 3,000 early this week. The index soared by more than 17% during the first six months of this year, its best first half since 1997.
Yet the road to a deal remains far from clear, say Alan Rappeport and Keith Bradsher for The New York Times. Top Trump advisers stress that there is "no timeline" to reach an agreement, and that the two sides remain "as far apart as they were when talks broke up in May". News that the US is considering imposing $4bn in extra tariffs on the EU amid a row about aircraft subsidies also suggests that a new era of trade harmony has not broken out between world leaders. In the meantime, "existing tariffs remain in place, meaning that the current drag on earnings and growth will continue", as Alec Young of Global markets research told CNN.
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Riding the asset-price bubble
There is no doubt that the "historic policy pivot" by major central banks towards monetary easing has driven this curious rally. The continuous liquidity injections risk decoupling asset prices "too far and too fast" from the economic fundamentals. That sets the stage for a "painful market correction".
The fundamentals are not looking great, agrees Jeff Cox on CNBC. The drag of trade tariffs has left analysts forecasting falls in S&P 500 corporate earnings for the second and third quarter. Yet investors have become so dependent on the Federal Reserve to deliver rate cuts that they "seem to care more about a dovish Fed" than the bad news that is making it dovish in the first place, says Spencer Jakab for The Wall Street Journal.
The chances are high that we have now entered the last innings of "this long bull market", says Tom Stevenson in The Daily Telegraph. The quandary is that past evidence shows that "the final push can give investors their best gains". Nevertheless, investors would be wise to consider switching into more high-quality and defensive stocks and as MoneyWeek explored last week look at topping up their gold holdings.
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