Financial markets cannot have their cake and eat it
Adds chart
Nov 14 (Reuters) -Financial markets cannot have their cake and eat it. Either they are not worried about a trade war, which means that equities and highly risky assets can rise further, or they are, which should lend more support for the dollar and other safe assets like gold and bonds which have been shunned.
It's far less likely that current moves across asset markets are sustainable and these moves are extreme with U.S. stocks and bitcoin hitting record highs, while the dollar rises towards last year's high, and bonds tumble.
Gold has sold off too, which implies traders are not as concerned about the possibility of a trade war that is suggested by sharp falls for both the yuan and euro - currencies of the nations likely to be targeted by the new U.S. administration.
It's illogical that these moves should coincide and highly unlikely that this unusual divergence can be maintained.
One view should dominate in the future, and when it does trades tied to the other will unravel and could so in a rapid and disorderly way.
No war is good, and the impact of a trade war should be similar to a military conflict. If tariffs are imposed the reactions for stocks and crypto-currencies seen this year will appear extremely optimistic and a big correction may result.
On the other hand, the U.S. may be forced to negotiate and not fight, with the recent flight to safety proving unnecessary.
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Big moves ahead possible trade war https://fingfx.thomsonreuters.com/gfx/buzz/dwvkkkdlmvm/Pasted%20image%201731587127585.png
(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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