Trade in focus as US-China meet for key talks

3:28 PM 9 October 2019

If last week’s market moves were mainly driven by economic releases, the theme this week has been far more focused on politics with the latest developments on trade at the forefront of traders’ minds. 

 

Summary:

  • US-China set for key trade talks

  • China open to “partial deal”

  • Soybeans gain as additional purchases announced 

 

Thursday will see the start of the first minister-level meetings in more than two months between the US and China as the world’s two largest economies come to the negotiating table to try and hammer out a deal on trade. Chinese Vice Premier Liu He is scheduled to meet with US trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin and the outcome of these could not only move markets into the weekend but also for several weeks going forward. 

The latest developments on this front could be characterised as constructive with separate reports that Beijing is open to a partial trade deal despite the recent tech blacklist and that China has offered to buy an extra $10B of US Soybeans causing spikes higher in Soybeans and also the US500. Source: xStation 

US food exports to China and Soybeans in particular have dropped significantly as trade tensions ramped up with the imposition of tariffs. With China announcing their intention to increase purchases going forward will we see a rally in Soybeans? Source: xStation

Other markets to watch:

It’s not just China that is feeling the force of the Trump administration’s aggressive trade policy with the US Treasury releasing a list of products it plans to target with duties that would take effect October 18th. Source: Bloomberg  

 

As far as the markets are concerned, a de-escalation of trade tensions is seen as a clear positive and would likely cause broad risk-on moves. Under such a scenario stocks would gain alongside US yields (Bond prices fall) and antipodean currencies (AUD and NZD) while Gold and perceived safe haven currencies such as the JPY and CHF would decline. On the other hand a failure to make a breakthrough would likely lead to risk-off trade and the opposite moves as those described above. 

It’s not just US indices that are sensitive to trade developments with the DE30 also showing a heightened sensitivity of late. A recent foray higher failed to break above the resistance zone from 12160-12220 and a possible bear flag is forming. 11815 remains potential support. Source: xStation    

 

 

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