A trivial visit in Montana rattles markets

Summary:

• Donald Trump said he was not interested in a partial deal with China
• A Chinese delegation was told not to visit US cornfields in Montana because of domestic reasons
• Equities dived while US bond yields fell quite notably on the report

It was a turbulent end of the past week. Firstly, US President Donald Trump informed that he was not interested in a partial trade agreement with Beijing. Then, we were offered some misleading reports concerning a Chinese delegation’s visit in Montana. Namely, market participants got information that China decided not to visit US cornfields localized in Montana, a signal boding not well ahead of another round of face-to-face negotiations at a high level expected to take place in Washington in October. This information pushed US equities lower, and as a result, the NASDAQ finished the day 0.8% lower, the Dow Jones lost 0.6% while the SP500 fell 0.5%. At the same time, investors looked more eagerly at US bonds pushing their prices higher and thereby lowering yields. As a consequence of a flight to quality, the US 10Y bond yield dropped to 1.72% from 1.77%. Meanwhile, over the weekend we were offered another report that a Chinese visit in Montana was cancelled at the US request pointing to “domestic reasons”. Moreover, a Chinese vice-minister at the Ministry of Agriculture and Rural Affairs said that “the change in the plan had nothing to do with the trade negotiations, as the trip was a stand-alone arrangement”. These comments could soothe concerns to some extent and it is already being seen across markets with SP500 futures rising 0.4% this morning.

US yields collapsed in response to a cancellation of a Chinese delegation visit in Montana. Source: Bloomberg