Financial market sentiment has been evidently jabbed in the past couple of trading sessions by concerns over the downbeat tone delivered by the European Central Bank (ECB) and another round of economic data releases clearly pointing out that the global economy is facing downside risks.
Therefore, investors really need an air of positive news to inspire some risk appetite back into valuations and there is no better potential catalyst for such a change in sentiment than stronger optimism coming out of the ongoing US-China discussions over a host of different issues.
Improved bilateral relations between the United States and China is in clear demand right now from investors and headlines, such as the most recent one that they have reached a consensus over many vital issues is extremely positive news for financial market sentiment.
This is now likely going to be the major theme heading into the next trading week and will hopefully help overshadow what was a past week of resumed concerns over the global economy.
Investors might not “buy” into this headline right away because quite a lot of US-China optimism has been priced into the market over the past couple of weeks, but optimism is still very much needed for risk appetite to take “the next step” as we conclude Q1. Optimism ultimately concluding in a hopeful signing summit in the next couple of months is the potential trigger for a rally in global stocks, emerging markets and the next round of momentum for emerging market currencies.
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