Punch-drunk stock markets attempted a comeback Wednesday emboldened by a new flicker of hope for a US-China trade deal, but fears that President Donald Trump may yet unleash a tariff war capped gains.
Trump's threat to hike tariffs on USD 200 billion of Chinese imports at the end of the week wiped more than USD 1 trillion off stock market valuations on Monday and Tuesday.
Nervous investors shifted money into government bonds, gold or the Japanese yen, all attractive safe-haven assets in times of uncertainty.
"We're in risk aversion mode in the markets as investors prepare for the prospect of tariffs on Friday rather than a trade deal between the world's two largest economies," said Craig Erlam, an analyst with OANDA.
But analysts wouldn't rule out Trump stepping back from the brink before the new tariffs become a reality, a view the president himself seemed to back Wednesday.
While pressing on with his tariff plans, Trump also said that Chinese trade officials intend to "make a deal" when they arrive in Washington this week for talks.
"US stocks are hovering around the flatline after overcoming an early drop after a tweet from President Donald Trump said China was coming here 'to make a deal'," Charles Schwab analysts said.
But until any such deal actually happened, market participants should tread carefully, analysts warned.
"The fact this could be little more than a bargaining gambit cannot be ignored," said James Hughes, chief market analyst at AxiTrader. "Developments in the coming days could see volatility maintained." Having traded mostly lower in the morning, key European markets posted small gains by the close, but investors clearly didn't have the stomach to take big positions with so little visibility on trade developments.
Frankfurt's saving grace was a sharp gain in DAX index heavyweight Siemens which reported steady profits and announced the spinoff of its historic power and gas unit.
Wall Street reversed an early weak trend to trade steady approaching midday in New York.
"The two largest economic powerhouses, the US and China, either will be at a trade war or a trade peace and in reality there's only a couple of people who know the answer to that and it isn't those of us on Wall Street," Larry Robbins, CEO of Glenview Capital Management, told Bloomberg TV.
Earlier Wednesday Asian markets slumped again, following Tuesday's blowout on Wall Street.
Hopes that it could soon be back to business as usual on the trade front helped oil prices rise.
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