China Asking for More Talks Before Signing Phase One
- Talks last week in Washington DC
- Progress relatively minor
- Chinese suggest more talks needed to sign on issues discussed
The markets will have to deal with more noise coming out of the US/China trade relations. The Chinese have stated that they wish to have further talks before signing “Phase 1”. Relatively underwhelming, most of the talks last week involved agricultural purchases. This a very low bar to cross: the Chinese have huge demand and the Americans will want to see some type of win for their farmers.
There had been talk about potential intellectual property issue agreements, but at the end of the meetings, not much had been agreed to. Ultimately, the Americans will not budge on this scenario, and eventually, this will be one of the biggest sticking points. All things being equal, this is one of the few things that President Donald Trump and the Democrats agree on, so obviously this is going to cause a longer-term issue between the Americans and the Chinese.
Now that the markets rallied so significantly during the Friday session, one has to wonder whether the risk appetite is overextended. We had seen the S&P 500 sell off quite a bit at the end of the trading session as details emerged. In that scenario, it’s very likely that the market will continue to favor safety assets, especially as the Chinese look less than thrilled about all the proceedings.
Chinese officials suggested that the talks were more about communication and less about agreeing on a deal. At this point, it looks like not much has changed in general, and therefore one would have to think that the markets should continue to behave the same as they have for quite some time. For example, the Australian dollar has been range-bound, just as the S&P 500 has, but in a much larger area. As traders look towards the earnings season on Wall Street, that’s probably the one area of information that may change.
Noise will probably continue to throw the markets around as Donald Trump tweets, the Chinese release statements, and the earnings season comes into play in the United States.
At this point, it seems as if risk appetite may have been a bit stretched, so that bond markets, gold markets, and other such assets may find themselves in demand rather rapidly. Riskier markets such as stock markets are probably still going to find quite a bit of headwind out there, as the world still hasn’t shown much in the way of clarity.