Souring US China Relations Could Pull Markets Back From Recent Highs

Souring US-China Relations could be the Catalyst that Pulls Markets back from Recent Highs.

The row between the US and China over the blame of the COVID19 pandemic is escalating.

Secretary of State Mike Pompeo publically declared there is “enormous evidence” the Coronavirus originated in a Wuhan laboratory, as opposed to the scientific consensus that it resulted from the transfer of animals.

Trump and Xi Jinping handshake
US China relations are souring following inflammatory allegations of a Chinese coverup

Mr Pompeo refused to provide reporters with any evidence yet highlighted China’s refusal to cooperate and share samples with the World Health Organisation as further proof.

“China has a history of infecting the world and they have a history of running substandard laboratories,” the Secretary of State tweeted adding further fuel to the flame.

Furthermore, he declared that the suppression of information by Beijing during the early weeks of the outbreak limited a globally unified response, eradicating any hope of containing the outbreak to the Chinese mainland. The Department of Homeland Security alleged Chinese officials kept silent so as to build up a stockpile of medical supplies.

Globally, over 3.7 million cases have been confirmed since with over 258,000 deaths.

The astonishing accusations have piled on further pressure to an already waning relationship between the two superpowers.

There is a real risk of a “Cold War” style confrontation should pressures continue to mount.

The US has been joined by several other countries including Australia and England that an independent investigation should be conducted into the origination of the pandemic. Chinese officials responded indelicately, claiming it “irresponsible”.

On the economic front, real plans are being put in place by the western world to limit the reliance of China in the global supply chain.

The President himself has warned of further punitive measures to be put in place as recompense for Chinese silence, exploring the idea of further tariffs or even a cancellation of US debt owed to Beijing.

We are still some way away from such drastic policy. However, as tensions rise and the chorus for Chinese compensation grows louder, anything is possible.

Undoubtedly, such a shock to a global economy that is already bleeding would send risk assets into a death spiral.

With valuations already stretched, perhaps this is the catalyst that causes a retest of March lows, one that many investors have been waiting for.

In-house Analyst


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