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US and China relations set the tone for global equities

Relations between the US and China continued to set the tone for global equities. Markets rose as relations between the two appeared to improve and central banks indicated that they were prepared to relax monetary policy in response to the ongoing uncertainty.

Global markets rallied on the prospect of Donald Trump meeting President Xi at the G20 summit. However, various data points continued to give a reminder of the damage done by the prolonged stand-off between the world’s two largest economies and by the escalation in trade tensions. Manufacturing in the Eurozone has been particularly hard-hit, while in the UK this has been compounded by the never-ending Brexit uncertainty. The US is the only region where demand remains robust. The impact of trade tensions on business confidence is becoming more pronounced and developments at the G20 summit, while welcomed, are not currently enough to remove the uncertainty that is holding back investment. Consumer demand remains fairly robust, underpinned by strong employment and a pick-up in wage growth. The risk of a series of negative feedback loops tipping the global economy into recession persists.