Stock Markets Brace for Big Week as U.S.-China Trade Negotiations Turn Positive
The United States and China have made considerable progress on their free trade negotiations, setting the stage for a potentially explosive rally in the stock market. As The Wall Street Journal reports, negotiators from both countries are fleshing out the details of a comprehensive plan that could boost U.S. exports and access to Chinese markets.
President Donald Trump on Saturday declared that “big progress” has been made in negotiating a new free trade agreement with China. “Deal is moving along very well,” Trump tweeted. “If made, it will be very comprehensive, covering all subjects, areas and points of dispute.”
Just had a long and very good call with President Xi of China. Deal is moving along very well. If made, it will be very comprehensive, covering all subjects, areas and points of dispute. Big progress being made!
— Donald J. Trump (@realDonaldTrump) December 29, 2018
Negotiations are set to continue until March 1 following the conclusion of a 90-day truce reached in early December. The truce was struck on the sidelines of the G20 summit in Buenos Aires, Argentina after a face-to-face meeting between Trump and Chinese President Xi Jinping.
People familiar with the matter told WSJ that Trump may be overstating just how close both sides are to a new agreement. Nevertheless, progress on the trade front should help bring relief to troubled investors following a bruising December.
U.S. stocks are coming off one of their most volatile weeks on record. Equities plunged on Christmas Eve, pulling the S&P 500 Index into bear-market territory along with the Nasdaq. On Boxing Day, equities posted one of their biggest gains on record, with the Dow Jones Industrial Average recording a nearly 1,100-point surge.
Trade risks have been a major source of contention for investors. The tit-for-tat trade war between the U.S. and China has resulted in lower growth targets for the global economy, placing further pressure on stocks. Further clarity on tariffs could provide a big boost for equity prices in the new year.
For more context around stocks and cryptocurrency, read Week in Review: Crypto Rally at a Crossroads.
Institutional investors have also contributed to the market’s erratic moves of late, with pension funds reallocating their holdings ahead of the new year. As ZeroHedge noted, the NYSE Tick Friday afternoon represented “the biggest buy program of all time.” The tick index compares the number of stocks that are rising to the number of equities that are falling on the New York Stock Exchange.
“At precisely 2:39 pm, a TICK print of 1,775 was registered, signifying the biggest buy program of all time,” ZeroHedge observed Friday. “Now, the only question — is this the real “pension buying” deal… or someone trying to fake out the algos into buying and trapped shorts into covering?”
Many analysts are convinced that the bull market is on its last leg and that the recent bout of volatility is characteristic of a major paradigm shift. Others believe that a rebound from recent lows is possible so long as the economy remains on solid footing. A free-trade deal between the U.S. and China will certainly aid in that respect.
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