US-China trade war raises risk of financial market ‘flash crash’, say analysts
- Effects of trade war and rising costs of doing business are creating risks in the markets amid growing economic headwinds
- Analysts don’t expect any resolution from the upcoming Xi-Trump meeting this month
The effects from the US-China trade war and mounting costs of doing business for companies are fuelling investor fears of the likelihood of a “flash crash” in financial markets, analysts have warned.
The deteriorating climate, they said, would force cash-strapped firms to offload assets quickly and reduce debt to buffer profit declines next year that could be brought about by the trade war.
But these risks would be magnified by the rise of artificial intelligence-driven electronic trading as automation speeds up financial transactions, allowing them to be conducted across multiple markets at the same time. Any macroeconomic data shock that forces abrupt forecast downgrades for economic growth and corporate earnings could lead to rapid, violent market moves or “flash crashes,” analysts said.
Already, a sell-off in US high-yield corporate bonds last month has signalled that headwinds are growing as the US enters into the end of the economic cycle after 10 straight years of expansion. Other warning signs include declines in corporate share buy-backs and dividend payouts that may trigger market turbulence.
Companies are increasingly pressured by rising borrowing costs: the Federal Reserve is expected to raise interest rates again at its next meeting on December 18-19, with two to four more hikes in 2019.