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Markets braced for increased volatility as Brexit and US-China trade row ramps up

Markets braced for increased volatility as Brexit and US-China trade row ramps up

Traders are preparing for a period of increased market volatility in the coming weeks, as the Brexit deadline approaches and the US-China trade dispute heats up.

Speaking on RTÉ’s Morning Ireland Neil Wilson, chief market analyst with Markets.com, said the potential disruption to global trade – and the response to that by regulators – would lead to an uncertain third quarter.

“In particular we’ve seen central banks coming out and cutting interest rates a fair bit, so we’re going to see some movement there,” he said. “We’re probably going to see some of the more safe haven-type currencies – the yen and the Swiss franc, as well as assets like gold, do better than the riskier assets.

“In particular with Brexit there’s going to be some real volatility around sterling in the coming months.”

Markets are also pricing in an increased likelihood of Britain leaving the European Union without a deal at the end of October, he said.

Mr Wilson said this was not yet seen as the most likely outcome – but was probably being treated as a 40:60 chance at the moment.

This, along with growing pessimism about US-China trade talks, contributed to steep dips in global market values earlier this week – losses that were extended in Europe on Tuesday.

“The US market tends to get a little bit of more support from investors because it’s a bit of a flight to quality,” Mr Wilson said. “You see Europe suffering and Asia suffering, just because they’re a little bit more exposed to a downturn in global trade.”

The devaluing of China’s yuan, followed by the US decision to officially label the country a currency manipulator, has added to fears of further trade disruption between the two sides this week.

Markets had hoped that there was some progress being made between the two sides, but Mr Wilson said the latest tit-for-tat marks a significant escalation in the dispute.

“It looks like the talks are breaking down,” he said. “We’re probably some way away from getting a trade deal done – and that’s set against what the expectations where throughout most of 2019, which has been a bit more positive.

“I think, by and large, people [now] don’t think we’re going to get a trade deal done until at least 2020.”

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