The outcome of the G-20 meeting should have been positive for equity markets with talks between the US and China apparently progressing. Saudi Arabia's support of Russia's decision to cut oil production, subject to the Organisation of the Petroleum Exporting Countries (OPEC) meeting at the end of the week, helped push oil prices higher after steep falls over the last two months. Unfortunately, optimism was short lived as doubts about the US/China trade deal emerged. Huawei's Chief Financial Officer was arrested in Canada, accused of violating trade sanctions with Iran. A request for extradition to the US was seen as souring US Chinese relations, harming the possibility of a trade deal. While equity markets focused on the bad news, there were signs trade talks had progressed.
China's Ministry of Commerce spokesman Gao Feng said "China will start from agricultural products, autos and energy to immediately implement specific items that China and the US have agreed upon".1 When asked for specific comment on autos he said to look for an announcement from the State Council's Tariff Committee. He also commented that the Chinese and American trade teams have good communication and have already reached a high level consensus. This appears to confirm some of Trump's optimism on reaching a deal with China.
I suspect that the falls in equities have been made worse by systematic trading and a lack of liquidity in the market, particularly with a US market holiday to honour the late President Bush Snr on Wednesday. I continue to see value in equity markets, particularly relative to bond yields. The UK, with a prospective price earnings ratio of just 11 and a dividend yield of 4.7%, looks attractive when compared to the ten year gilt yield at less than 1.3%.
Brexit will continue to dominate UK headlines for some time and the outcome of this process remains unclear. While the short term direction is difficult to predict, valuations appear to compensate investors for a lot of this uncertainty. In the long run, US trade policy may have a greater impact on markets.
 Bloomberg, 6 December 2018