LIVE MARKETS-Trade wars: from spotlight to sideshow

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TRADE WARS: FROM SPOTLIGHT TO SIDESHOW

The era of trade wars monopolising the narrative might be drawing to a close, according to Kairos Partners strategist Alessandro Fugnoli, who thinks further developments in the tariff saga will likely become more of a sideshow for markets.

Fugnoli expects geopolitics and policy to take centre stage, and even though the trade war has inflicted damage, this will only weigh for a few weeks and will not lead to the feared recession that many were starting to think was a given.

"So, we can say that the trade wars chapter will see further developments, not least because tariffs have now become a permanent tool of pressure, to be used whenever one wants to reward, or punish something or someone," he says. "Almost all agreements with various countries also still need to be defined. However, these developments will be side notes to a story that will no longer monopolise the spotlight, gradually ceding the stage to geopolitical events and fiscal and monetary policies."

Looking ahead, Fugnoli sees a mixed outlook for the new drivers. He notes that while geopolitics present some positives with truces and negotiations emerging, including in Ukraine, Iran and India-Pakistan, these remain fragile situations that could turn sour again.

Fiscal policies are generally shifting towards expansion, which should boost growth, but also raise concerns about long-term debt sustainability, he says. Simultaneously, central banks, likely including the Fed eventually, should keep with rate cuts. That will heighten inflation risks in 2026 when the global economy accelerates.

In the short term, Fugnoli sees positioning and fund flows as key for market direction: While retail investors aggressively bought recent lows, he notes, institutional players who stayed heavily underweight will likely need to chase the rally, providing further support.

(Danilo Masoni)

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FOR TUESDAY'S OTHER LIVE MARKETS POSTS:

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THE LAST 6 MONTHS: 90% OF MSCI INDICES HAVE BEATEN WALL ST CLICK HERE

STOXX MUTED AS TRADE WAR TRUCE CELEBRATION ENDS, EARNINGS RUMBLE ON CLICK HERE

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WITH A HIATUS IN THE TRADE WAR, IT IS BACK TO THE GRIND CLICK HERE