Another G20 summit ended with the conclusion of a trade truce between the United States and China. However, the market seems to doubt that all the difficulties have been left behind, because a trade truce is not the same as a deal.
Morgan Stanley experts call the situation a "pause of uncertainty".
"On the one hand, Washington and Beijing managed to avoid an immediate escalation of the trade conflict, and on the other – the path to a comprehensive agreement remained unclear," the experts noted.
It is assumed that if US tariffs against China are not reduced or canceled, then the second largest economy in the world will face serious difficulties.
Investors fear that if China "sneezes", then the rest of the world will " get sick". There is already evidence that this is possible: production activity in Australia, Britain and the eurozone is slowing. At the same time, the US is probably the only one who benefits from trade tariffs. Recent data show that production activity in the United States is ahead of forecasts, and in all other countries – behind them. Thus, protectionist policies of Donald Trump harms all other countries more than the United States, and this is one of the reasons why the greenback is becoming stronger in recent days.
"We will remain in a long position on the dollar until the global economy shows signs of recovery, and until real prospects for a trade deal become clear," said George Bourbouras, Director of the Salter Brothers Asset Management.
Morgan Stanley analysts warn that if the US does raise duties on the remaining Chinese goods of $300 billion, the world business cycle will be in great danger, and the global economy may plunge into recession in about three quarters.
Apparently, the dollar is already beginning to show the nature of a protective asset in response to the expected slowdown in the world economy.
Meanwhile, the head of the White House, Donald Trump, once again decided to aggravate the situation, saying that the deal with the Chinese should be concluded with some preferences for the American side, as China had a great advantage in trade with the US for many years. It is unlikely that such a twist will appeal to Beijing. If the latter refused to make concessions, the trade war could continue until a new president appears in the United States.
