Citi Wealth Insights

Political and policy uncertainty affecting trade, sanctions and regulation is generating increased levels of investor concern, with impact on the global economy and financial markets.

The extension of the US-China trade dispute together with other unresolved geopolitical concerns – Brexit, a potentially more populist European parliament and US-EU/ Japan trade tensions risk posing headwinds to the 2H19 outlook. This is likely to support safe haven currencies.

Citi analysts believe that oil can outperform other commodities even if trade tensions were to escalate. This is because supply-side factors can be far more influential than demand changes.

Amid a revival of trade fears, Citi’s overweight stance on fixed-income quality may help navigate more volatile mid-year markets and potentially strengthening risk-adjusted returns.

Financial markets weakened over the course of May as investors came to see a lower probability of a quick resolution of trade disputes. In light of trade fears revival, Citi analysts have scaled back on risk allocations by tactically reducing global equities to underweight.