Trade-War Risk Has Investors on Alert as New Week Gets Underway

(Bloomberg) --

Investors are on alert to see what impact escalating trade feuds might have on the global outlook, but refrained from further judgment in early trading hours Monday following last week’s selloff in riskier assets.

Most major currencies were little changed as the first traders began work for the week in the Asia-Pacific region, with the U.S. dollar little changed against its largest peers and the Japanese yen, a traditional haven, relatively steady. Trading is yet to get under way for other markets such as equities and bonds.

The stand-off between the world’s two largest economies deepened at the weekend as China blamed the U.S. for the latest breakdown in talks. Traders were also left digesting a move by the Chinese toward blacklisting FedEx Corp., a threat by U.S. President Donald Trump to slap tariffs on all Mexican goods and a decision to end an arrangement that lets India export almost 2,000 products to the U.S. tax free.

“Investors are generally of the view that the trade dispute could drag on for longer, but they appear to be overlooking its potential impact on the global macro outlook,” Chetan Ahya, the New York-based head of economics at Morgan Stanley, wrote in a note distributed Sunday. “If trade tensions continue to escalate, the global cycle will be at risk. We could end up in a recession in three quarters.”

For more on what the Treasury market will be focusing on, click here.

As the outlook on trade deteriorated, U.S. Treasury yields last week registered their biggest five-day decline since 2014, reflecting growing speculation an economic downturn will prompt the Federal Reserve to cut interest rates by year-end. The S&P 500 Index posted its worst week of 2019.

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