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‘No Trade Deal’ Scenario Keeps A Hard Cap On Oil Prices

Recent financial market headlines have been dominated by stories covering the plunge in global interest rates. And for good reason. Government bond yields have been sinking like a stone lead by a move in the US 10yr yield down to 2.1% for an 18-month low. Meanwhile, in overnight markets, the 3-month LIBOR has dropped from 2.8% in December to 2.5% this week. So why are investors flocking to bonds? Simple- heated rhetoric between Washington and Beijing is making a US/China trade pact seem less and less likely every day and raising concerns that elevated tariffs could trigger a global recession.

Concern that the two sides are only moving farther from a deal is justified. Rhetoric from the Trump administration is taking a hard line, no compromise attitude towards the negotiations which could be difficult to reverse. In Beijing, President Xi is now using the tougher US stance to generate nationalist support arguing the US is maligning the Chinese and threatening their sovereignty. The Chinese newspaper People’s Daily has taken an extremely aggressive path in generating support of a non-cooperative trade attitude writing “we advise the US side not to underestimate the Chinese side’s ability to safeguard its development rights and interests. Don’t say we didn’t warn you!” Chinese officials have also threatened to cut off exports of rare earth materials used by the US to make electronics, defense materials and electric vehicles. The issue…




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