Traders have been given cause for fresh optimism this week, regarding a potential end to the trade war as the latest round of negotiations begin. A team of US delegates, led by U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, arrived in Shanghai yesterday. The group met with its Chinese counterparts, led by Chinese Vice Premier Liu He, to attend dinner and take part in more formal discussions later today.
Formal Talks To Start
The meeting comes in the wake of Trump’s meeting with Chinese premier Xi JinPing at the recent G20 meeting. The pair once again struck a truce and agreed to restart trade talks following a break down earlier in May, when Trump announced a fresh increase in tariffs on Chinese goods. China responded in kind and tensions ratcheted up. However, with both sides clearly wishing to avoid any further economic damage, there is hope that these new negotiations can deliver a result.
However, despite talks being back underway and both sides showing good faith so far, there is still a strong level of reservation. Given the volatile nature of the relationship between the US and China, accompanied by the potential for the talks to break down at a moments notice, it seems that the market is waiting for hard evidence of progress.
Unresolved Issues
The key issues which remain unresolved currently, are around intellectual property and technology transfers, as well as China’s demand that the US removes all tariffs before it will agree a deal. Given these outstanding issues, there is currently only a very low level of expectation for the talks to produce a deal. This is especially true considering that the promises made at the G20 meeting, e.g Trump allowing US companies to deal with Huawei again and China ramping up agricultural purchases, have yet to materialise.
Trump Sounds Off
In his usual style Trump has further increased pressure on the talks by taking to Twitter...
China is doing very badly, worst year in 27 - was supposed to start buying our agricultural product now - no signs that they are doing so. That is the problem with China, they just don’t come through. Our Economy has become MUCH larger than the Chinese Economy is last 3 years....
— Donald J. Trump (@realDonaldTrump) July 30, 2019
...to ripoff the USA, even bigger and better than ever before. The problem with them waiting, however, is that if & when I win, the deal that they get will be much tougher than what we are negotiating now...or no deal at all. We have all the cards, our past leaders never got it!
— Donald J. Trump (@realDonaldTrump) July 30, 2019
Waiting Game
For now, the market will wait to hear news of how this first round of talks go. If the headlines are positive and a next meeting is arranged, it's likely to be risk positive, supporting equities. However, if the meeting is a non event and we hear little in the way of details, risk assets are likely to come off a little. However, given the expectations for a US rate cut, any move lower could be short lived.
Technical Perspective
SPX500 continues to trade higher within the bullish channel which has framed price action over recent weeks. Despite a recent pull back from fresh higher, SPX500 found support at a retest of the 3000 level, with bullish cannel support sitting just below. While above here, focus remains on further upside. Any break lower from here, will put the 2970.95 level in focus, where we have another ledge of structural support likely to find technical buying.
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