Did China Call Trump’s Trade Team? Why it Ultimately Doesn’t Matter for Traders

Whether China’s top policymakers called to restart trade talks or not is irrelevant for short-term traders.

It’s certainly been a busy morning for traders following the latest developments in the US-China trade saga!

The minute the FX market closed for the weekend, President Trump announced a 5% hike in existing and announced tariffs Friday evening, leaving traders the whole weekend to digest the developments. When the markets reopened for this week, there was a decidedly risk-off tone to trade, with US stock indices trading down another 1% and USD/JPY hitting its lowest level in nearly three years near 104.50.

However, we’ve since seen a big U-turn in the markets this morning after President Trump declared that China called “our trade people and said let’s get back to the table.” He went on to note that the calls had taken place “at the highest level” and that “anything’s possible” when asked if he would delay tariff increases on China.

The only issue? According to China, no such high-level talks took place.

Taking a step back, whether China’s top policymakers called to restart trade talks or not is irrelevant for short-term traders. In essence, there are two possible scenarios at play:

  • Either China did call, which suggests that they may be more willing to make a trade deal after this weekend’s escalation in tariffs…
  • …or they didn’t, which suggests that President Trump is exaggerating the significance of any conversations. This means that Trump is increasingly sensitive to the risk of the stock market falling further heading into an election year and may be more likely to make concessions to China. The President’s weekend tweet about the appropriate way to measure “his” stock market gains supports this view.

Either way, the developments are bullish, at least in the short-term, for risk trades (global equities, oil, and trade-sensitive currencies like the Australian dollar).

Time will tell if this weekend’s developments mark a turning point in the nearly 2-year-old tit-for-tat exchange of tariffs or not (and we’re certainly skeptical given past “breakthroughs”). But one thing is absolutely clear: President Trump is hyper-focused on the performance of the stock market, and he’ll say or do anything within his power to avoid a bear market in the run-up to the 2020 Election.

In Focus: Dow Jones Industrial Average

While we’ve seen a big outbreak in volatility this month, highlighted by three 2%+ down days, the Dow Jones Industrial Average has held a relatively tight range between 25,400 and 26,400 over the last three weeks. This week marks the proverbial “end of summer” doldrums, when many traders try to take one last vacation away from their desks, so we wouldn’t be surprised to see the range hold for another week (pending trade developments).

A bullish breakout, perhaps driven by verifiable progress in trade talks between the US and China would open the door for a retest of the summer’s highs at 27,400. For the reasons we outline above, a downside breakout may be short-lived, with potential for a move down toward 24,700 before the bullish rhetoric (and actions) out of the White House start trying to put a floor under stocks.

Source: TradingView, FOREX.com


This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.